ISET students present on tax administration issues
Tuesday, 20 June, 2017

ISET continues its student policy paper seminar series for the institute's (now graduated) second-year students. This time, Tatia Sosiashvili, Megi Tsikoridze, Nino Aladashvili, and Sopo Basilidze presented their joint paper on tax administration in Georgia. Their project, entitled “Current Challenges in Tax Administration (VAT)”, was supervised by Eric Livny, President of ISET and the ISET Policy Institute, and Sophiko Skhirtladze, an ISET Resident Faculty member and head of the Private Sector Development Policy Research Center.

The students explained that tax administration is an important tool for the government to implement and enforce tax laws and receive mandates by law. It includes the management of taxpayers’ registration, including the detection of non-registration and false registration; the processing of tax returns, withholdings and third-party information; the verification or examination of the correctness and completeness of received information; the process of enforced debt collection, and the handling of administrative appeals and complaints.

While examining a TADAT report, the students found serious flaws in the design and operation of the value-added tax (VAT) refund system. They reviewed the TADAT findings, a G4G report and interviewed stakeholders in this field. According to their findings, the main problem in assessment is that businesses are not willing to claim their refunds. This creates fiscal risks for the government and unwelcome economic impacts on the private sector. To understand the problem better, the students observed the process of calculation and operation of VAT and found that this tax is calculated according to the difference of VAT on revenue and VAT on expenses. If the VAT on expenses exceeds the VAT on revenue, this creates an obligation of the government to producers. This amount of money is accumulated on accounts as credit, and taxpayers are allowed to refund this credit. However, in Georgia, producers generally do not claim their money because they are afraid of being checked by an audit authority. Indeed, if a taxpayer claims the refund, there is a high probability that he will come under scrutiny. The audit process takes a lot of time and resources, and may also hinder business activities.

The students suggested a number of possible solutions to this problem. Firstly, they suggested readjusting audit practices to current needs to minimize inefficiencies through fine-tuning risk-based auditing practices and minimizing the time and cost of audits. They also proposed improving the quality of accounting and reporting within the companies through raising awareness and consultations.

The next policy seminar will be delivered by students of the Social Policy division, which will complete the series for this year.