Mamuka Bakhtadze: “Business has one of the lowest tax burdens in Georgia. This is because as concluded by the World Bank, total tax rate in Georgia is only 9.9% and this makes us number three in the world in that component.”

The FINANCIAL — Verdict: FactCheck concludes that Mamuka Bakhtadze’s statement is TRUE.

Resume: In accordance with Doing Business, which is the World Bank’s survey, direct taxes (profit tax and property tax) in Georgia, which are paid directly by enterprises, constitute 9.9% of enterprises’ commercial profits. With these figures, Georgia is at the 3rd position the world ranking.

Doing Business considers total rate of taxes (profit tax and property tax) as barrier for business. Apart from tax rates, additional barrier for business (according to Doing Business) is frequency (administering) of payment of taxes. In total, according to Doing Business tax payment indicator, Georgia is at the 16th position in the world ranking.

In regard to easiness of doing business in general, Georgia is ranked 6th in the world.

Analysis

The Prime Minister of Georgia, Mamuka Bakhtadze, in his speech at International Import Expo in China, discussed tax burden in Georgia as well as international rankings. As stated by the Prime Minister “Business in Georgia has one of the lowest tax burdens. This is because, as concluded by the World Bank, total tax rate in Georgia is only 9.9% and this makes us number three in the world in that component.”
Most likely, the Prime Minister underlined the Doing Business rankings and referred to the data given in the last report.

In accordance with Doing Business 2018 report, Georgia is number 6 in the world in terms of easiness of doing business. This ranking is based on ten primary indicators, whilst small and medium size enterprises are principal subject of study. Of those ten indicators, one of them is about taxes.

In turn, that indicator consists of several components. One of the components is about share of taxes in commercial profit of enterprises, that is, total tax rate. Doing Business surveys medium size enterprises to measure the share of taxes in commercial profit. Of six existing taxes in Georgia, Doing Business adds two direct taxes to each other and measures them against profit. These two taxes are profit tax and property tax, which are paid directly by an enterprise. In order to compose the easiness of doing business rankings, World Bank believes that direct taxes, which are paid by enterprise or an employer, are barriers for business.

As per Doing Business measurements, based on 9.9% taxes to commercial profit ratio, Georgia is ranked third in the world, whilst Brunei (8%) and Vanuatu (8.5%) are ranked at the first and second positions respectively.

As we have already mentioned, total rate of direct taxes is one of the components of Doing Business tax payment indicator. However, other components of that indicator refer to number of taxes, payment time and means, VAT refund and other issues of tax administration. In total, based on tax payments indicator, Georgia is 16th in the ranking.

Graph 1: Doing Business Ranking in terms of Tax Payment

Source: Doing Business, Report 2019

The aforementioned component is about taxes, which are barriers for business. However, whilst analyzing the tax burden, of interest is to measure weight of taxes on the economy, which is measured by tax incomes to GDP ratio. That indicator shows what part of the economy is taken and redistributed by government. In the same time, that indicator also includes indirect taxes and income tax, which notwithstanding the taxation subject, is an essential tax burden on business.

In 2016, Georgia was 57th in the world based on that indicator (only pre-2016 information is available). In 2016, tax incomes to GDP ratio was 25.8%. In the last ten years, tax incomes to GDP ratio has remained 25% on average and does not have an explicit trend of increase or decrease. In addition, in the following years, substantial changes of that figure are not expected.