IMF names Georgia among world’s 5 countries with best tax reform

An IMF representative said keeping the Lari fluctuating was the best reaction to economic shocks. Photo by N. Alavidze/Agenda.ge
Agenda.ge, 11 Mar 2018 - 13:31, Tbilisi,Georgia

Georgia has been named as a striking example of successful tax revenue reforms, the International Monetary Fund’s new report, Balancing Act: Managing the Public Purse, says.

The report looks at successful reforms between 2004 and 2015 in five low-income and emerging market economies, which have achieved some of the largest revenue gains after tax reform, including Cambodia, Georgia, Guyana, Liberia and Ukraine.

We focus here mainly on Georgia. By analyzing what worked in that country we can draw lessons for what strategies other countries should consider”, the author of the report, Bernardin Akitoby, said.

Akitoby believes that the main reason for the praise can be found in Georgia’s 2004 tax reform, which simplified the tax system, reducing rates and eliminating a series of minor local taxes that had been generating little revenue.

The government also made it easier to pay taxes by introducing electronic measures, which has both improved efficiency and reduced opportunities for corruption.

The improvement in the country’s ability to mobilize revenue between 2004 and 2011 is all the more impressive given the sharp reduction in tax rates”, the report reads.

Based on the report, progressive personal income tax rates (12 to 20 percent) were replaced with a flat rate of 20 percent, and the social security contribution tax rate was first reduced from 33 percent to 20 percent and then eliminated altogether. Only 7 of 21 taxes remained.

Corporate income was taxed at a flat rate of 15 percent, and VAT was reduced from 20 percent to 18 percent. The revenue lost from lower tax rates was made up through a broader tax base, better compliance and stricter enforcement.