IMF Lists Georgia’s Tax Reform Among 5 Best Worldwide

The International Monetary Fund has praised Georgia’s tax reform in its new report Balancing Act: Managing the Public Purse. It says it can serve as an impressive exemplar of successful tax reform implementation for other countries.

The report evaluates tax reforms in low-income and emerging market economies between the years 2004 to 2015, with it listing the largest revenue gains after reforms have been implemented. The other 4 countries include Cambodia, Guyana, Liberia, and Ukraine. 

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

He pinpoints Georgia’s 2004 tax reform as the main reason for this evaluation, as it simplified the tax system through the reduction and removal of low and superfluous local tax-rates generating only small revenues. 

The ‘E-Government’ has been another important measure implemented by the Georgian Government, allowing citizens to pay taxes more effectively and decreases corruption opportunities.

The report highlights how “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.”

One example can be found in the reduction and removal of the social security contribution tax. Initially reduced from 33% to 20%, it was eventually eliminated. The tax reform resulted in a situation, where only 7 out of the initial 21 taxes remained.

Some tax-rates, however, experienced an increase through the reforms, such as the former progressive personal income tax. Previously ranging between 12-20%, it was replaced a flat rate of 20%. 

Similarly, the corporate income tax was put at 15%, while the VAT tax rate was reduced from 20 to 18%. 

Despite tax removals, the reason for the revenue increase was the implementation of a broader tax base coupled with stricter enforcement and compliance laws.

By Benjamin Music

12 March 2018 13:00