EPI Report: Assessment Tax Administration System

Georgia has made significant effort in improving tax administration. Over the last several years, USAID provided considerable assistance to the MoF in designing and implementing reforms aiming to improve overall tax compliance. The initiatives included e-filing of tax returns, initial steps to implement risk-based audits, automation of tax lien filing, non-filers, non-payers business process, etc. The tax legal and regulatory framework was significantly streamlined and clarified, thus decreasing compliance burden for taxpayers and administration alike and increasing voluntary compliance. Return forms were significantly simplified for all taxes, reducing the number of pages, and eliminating redundant information requirements.

A new Revenue Code became effective from January 1, 2011. This code introduced, among other things, a different taxation regime for SMEs, the right for Revenue Service (RS) to issue binding advisory opinions and tax rulings, and combined the tax and customs provisions into one code. Despite all these new developments, the tax administration is still following, to a large extent, an enforcement compliance approach versus voluntary compliance. A key change that needs to occur is for the RS to stop relying on penalty assessments as a major source for raising revenue. Areas of particular concern include: a) enforced collection procedures and practices; b) non-filer/non-payer control procedures; c) tax declaration processing procedures; and d) tax lien filing procedures.

The challenge is to identify areas for improvement and develop recommendations to enhance the tax administration system and bring it into compliance with international best practices encompassing a voluntary compliance approach. This report addresses the abovementioned concerns.