Azerbaijan wants to abolish tax benefits from securities transactions

Azerbaijan, Baku, June 3 / Trend I.Khalilova /

The Parliamentary Economic Policy Committee once again has proposed to abolish tax benefits from securities transactions.

During debates on a bill on amendments to the Tax Code, Deputy Committee Chairman Chingiz Asadullayev said the moratorium was lifted three years ago and taxation have been re-imposed on securities operations, which affected the pace of development of the country's securities market.

The tax holidays expired in 2010, due to which incomes of individual and corporate clients on securities transactions will be taxed at 10 percent.

"Today, 80 percent of investments are formed through domestic investment, but foreign investors will not enter the securities market, if these preferences not implemented," Asadullayev said.

The Tax Ministry claims that the number of minority shareholders is 5-10 percent, but tax breaks should be applied to protect their interests and income, Asadullayev said.

According to calculations made based on data for 2009, tax deductions to the state budget from earned profits of joint stock companies, which were exempted from taxation up to now, amounted to 21 million manat.

"Accordingly, the state budget will earn an additional 21 million manat from the abolition of tax benefits," State Securities Committee Head Rufat Aslanli said earlier.

"On the other hand, it means bringing not only the majority shareholders to taxation, but the minority (over 90,000)."

In 2009, he said, the dynamics of growth in the securities market was measured by a few thousand times compared to 2008. On the other hand, the demand in securities in 2008 and 2009 exceeded four times the demand in 2010.

"If the yield varies in the range of 1-3 percent, then tax payment at a rate of 10 percent of securities trading significantly impacts the participants of the stock market," Aslanli said. "That is why investors think about the reasonableness of investing in bank deposits, which will provide dividend of 8 percent per annum without paying taxes, rather than in three-percent state bonds, although they are now considered the most reliable tools."

Since Jan.1, 2010, release of the interest payments on deposits from individuals by banks and other lending institutions from taxes extended for an additional three years. The loss to the state budget by the application of these exemptions is estimated at 60 million manat, but this decision is aimed at supporting the banking system.

Tax benefits in respect of interest on deposits paid to public by the banks and other lending institutions, as well as the revenue from securities transactions, were introduced in 1995 for the first time. These tax incentives allowed deposits to increase by 300 million manat.

The official exchange rate is 0.7893 manat to $1 on June 3.

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