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ACCELERATION OF AMORTIZATION CANCELLED

Analysis Materials 16 November 2005 12:04 (UTC +04:00)

In compliance with the changes and supplements to the Tax Code, Article 114.3.8, envisaging the acceleration of the amortization of major funds was excluded from the major document. In compliance with the article, norms of amortization of payments on major resources of production appointment, put into exploitation this year, exceed the similar norms, injected in the previous years on major funds twice. In practice it finds its reflection in the amount of deducted from the incomes yielded by the amortization payments. It enables the entrepreneurs to activate their opportunities of intensifying the investment process, improving the qualitative and quantitative parameters of the equipment and other major funds. What were the reasons for cancellation of intensified amortization?

World experience

Tax privileges in many world countries are linked with the system of amortization write-offs. They are used for stimulating the development of concrete fields, facilitating scientific-research and experience-construction projections, or for common investment survival.

In Germany the legislation empowers the companies to apply accelerated amortization on assets. For instance, triple increase of annual norms of amortization is allowed for production rigs and equipment during the first few years of their service.

In Ukraine the small enterprises with the application of accelerated amortization are allowed to write in the first year of operation amortization payments up to 20% of the initial cost of major funds with the term of major funds exceeding three years.

Experience of Azerbaijan

The accelerated amortization was injected in Azerbaijan 2001. Thus far, the Tax Code stipulated the so-called investment privilege, under which the entrepreneurs had a right for decreasing taxed incomes. Late 2002 the privilege was removed as part of changes and supplements to the Tax Code. In 2003 the norm of deterioration, referred to accelerated norms was reduced twice. From the next year the last will stop existing.

According to the specialists of Taxes Ministry, the goals set in the moment of injection of the intensified amortization, have been almost achieved. The goals included the development of small and medium entrepreneurship (SME) and especially, the SME involved in production and technologies. The accelerated amortization (along with releasing financial leasing from the VAT) was the basic reason for sharp development of the leasing services market in Azerbaijan. Thus, in compliance with the last data on the project on development of leasing in Azerbaijan, carried out by the International Financial Corporation (IFC), assets of the leasing companies comprised $24.5m (cf.: in 2003 they made up $4.2m). Along with rise in assets, the number of leasing companies also grows.

Along with the said reasons, the cancellation of the intensified amortization targets the implementation of commitments, set by the famous anti-inflation decree by the Azerbaijan President Ilham Aliyev. The decree charges the Taxes Ministry to take measures on further reduction in tax privileges. In the end it should be mentioned that a change to the Tax Code will increase the revenues of the public budget through profit taxes, as cut in written-off amortization will lead to rise in taxed profits.

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