The FINANCIAL — Georgian businesses are counting their benefits saved by reduced taxes announced the Prime Minister Mgaloblishvili last week. The FINANCIAL’s study shows that actually a very small number of employees in Georgia will benefit from the reduced income taxes. Georgia’s largest employers prefer to invest saved money in their business development.
Temur Kuprava, Master of the Economic and Finance Programmes at ESM Business School, says the decision of reducing tax rates announced by the new PM Mgaloblishvili was a method of rehabilitation of the Georgian national currency that felt last week by 0,20%.
“In their working plan, our government considered shortening taxes from 25% to 15% but it must be done step by step. This was compensation for the sudden increase of the exchange rate. The increase of foreign currency will raise products’ prices. The decision to reduce tax rates was made to recover from this and calm citizens,” Kuprava says.
The GEL devaluated by 0.16 against the USD from Friday to Monday (November 7-10). In the same two days the GEL depreciated by 0.21 against the EUR. The GEL’s rate has reached a point of equilibrium which is 1.65.
On Friday the exchange rate that commercial banks and NBG had was the same. USD 1 equalled GEL 1.4400. On Monday the USD hit a record by equalling GEL 1.71-75 at commercial banks. After NBG made an official announcement about correcting the GEL’s fixed rate at 1.65 against the USD, commercial banks lowered foreign exchanges too. A spokeswoman for NBG told The FINANCIAL that commercial banks were expecting the GEL rate to be 1.80 against the USD.
The income taxes will be reduced from 25 to 20 percent from 2009, Georgian Prime Minister Grigol Mgaloblishvili told businessmen at a special meeting on November 11. The Minister defined that taxes on dividend will also be cut with 50%, from 10 to 5% next year.
“It means an extra GEL 250 added to the Georgian economy. This means that the income for every employed person will be increased; their savings will also be increased. In addition, the reduction of taxes is a precondition for creating new jobs,” the PM told businessmen.
Although companies must choose one option only. They must decide what is more strategic for their business: savings or an increase of salaries.
“The decrease of social taxes at 20% will save financial resources which will be oriented at enlarging business,” Samson Pkhakadze, Chairman of the Wissol Board of Directors, Wissol Petroleum Georgia, told The FINANCIAL.
Wissol Petroleum Georgia, which is one of the leading oil importers in Georgia, employs about 1,200 people.
Wissol says the Government’s decision will allow them to save GEL 700,000.00 in 2009, almost half a million USD.
“The total sum of taxes paid in 2007 consisted of GEL 72,588,189.00. Income taxes were GEL 521,950.00. We don’t have any payments at dividends. In 2008 income taxes reached GEL 1,759,298.4. With the reduced taxes we will save GEL 700,000.00. We will use this saved money for further development of the business,” Pkhakadze mentioned.
“As for the half diminution of dividends I think that it shouldn’t exist at all. Actually having a low level of taxes for a country of a transitional economy is one of the best decisions. Of course, there will come a time when taxes in Georgia will be bigger than now but before this we have a lot of things to do. The most important is an increase of the economy’s development and strengthening of the private sector. Strong business is a guaranty of each country’s economical and political strength and stability,” Pkhakadze added.
“The amount of taxes in 2007 consisted of GEL 1,535,180. Income taxes were GEL 839,736 and social – GEL 695,441. Our company doesn’t have to pay dividends. The income taxes in 2008, at around ten months, had reached GEL 1,051,735. According to social law, we don’t pay any dividends. We plan to use this saved money in raising the qualifications of staff and on different trainings,” Nino Surguladze, Canargo Energy says.
CanArgo Energy Corporation is an international oil and gas exploration and production company operating in the exciting oil and gas provinces of the former Soviet Union. CanArgo is currently focused on Georgia in the Caucasus where it has a large portfolio of attractive exploration, appraisal and development projects in the onshore Kura Basin in the east central part of the country.
According to Tamila Chantladze, Senior PR Advisor of British Petroleum (BP), amount of salary is fixed in standard contract. It includes income taxes also. “So the reducing of payments on taxes will increase salaries of employees”.
According to data of 2007 BP has 591 employees.
“As for the income tax amounts paid by employees, we regard this information as confidential,” Chantladze said.
“We paid about GEL 6 million to the state budget. Savings will be partly used for growing our staff’s salary and we’ll be mostly focused at raising the premium fund,” said Tato Maxaradze, Financial Director of Iberia Refreshment, official bottler of Pepsi in Georgia.
Pepsi has 230 employs in Georgia. The average salary is GEL 700-800.
“Magti has 1,004 employees. Average salary is GEL 1,000 (USD 600),” Zura Galumashvili, Financial Director of Magti, told The FINANCIAL.
“According to our contracts our staff will benefit from money saved on taxes. Their salaries will rise by 5%. As for dividends, it is a benefit for the company,” Galumashvili said.
Georgian banks will focus the profit at increasing their credit portfolios.
Cartu Bank paid GEL 10,091,436 to the state budget in 2007. The income taxes were GEL 1,584,318. Ten month data of 2008 showed that the sum had reached GEL 1,652,602.
Cartu Bank told The FINANCIAL that saved money in 2009 will consist of GEL 25,000.
“We will use the saved money for crediting resources and increasing investments in the country’s economy,” a representative from Cartu Bank said.
As an official representative from Bank of Georgia informed The FINANCIAL the bank will focus its resources on increasing crediting and service improvement.
The income taxes paid to the budget by Bank of Georgia reached GEL 3,635,660.66 in 2007.
“In 2008 till October the sum of paid taxes reached GEL 9,618,819.52. As for dividends we have not delivered any,” an official bank representative said.
“Bank Republic, Societe Generale Group, makes a lot of investments in different fields, so the total sum of taxes was very little in 2007”, Bank Republic, Societe Generale Group informed FINANCIAL. “Saved money will be used by the bank for future investments”, bank said.
Georgia was ranked 110th in Doing Business 2009 by IFC and World Bank in the special category of paying taxes. In 2008 it was positioned at 106.
Ukraine is rated at 180, the United States at 46, Azerbaijan at 102, Russia – 134.
Written By Madona Gasanova