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Finance Ministry Reluctant over zero tax on Reinvested Profit

Wednesday, October 7
Deputy Finance Minister Giorgi Kakauridze told lawmakers on Monday that the government will not hurry the corporate income tax reform.

He could not specify when, if at all, the previously-announced intention to scrap the corporate income tax on reinvested profits could be introduced.

The proposal was first announced in March, 2015 by the then-Minister of Economics Giorgi Kvirikashvili, who is now the Foreign Minister. He said at the time that although it would have a negative short-term impact on state coffers, cutting tax revenues by several hundreds of millions of lari, in the long run it would boost economic growth.

At a parliamentary committee hearing of the 2016 draft state budget on October 5, Deputy Finance Minister Kakauridze was asked by opposition MP from Free Democrats party, Davit Onoprishvili, if the proposal was still on the table.

The Deputy Finance Minister responded: “After a thorough discussion we found that it’s not a model that can be automatically replicated in Georgia with positive results. We had a meeting with the Estonian experts, including people who were involved in the implementation of this reform [in Estonia], but this model creates certain risks and triggers questions.”

Estonia has had zero corporate taxes on reinvested profit since 2000.

“In general, we are planning a reform of this tax, but I cannot give a precise date when it will be done, but I can say with high probability it won’t be applied from 2016,” Kakauridze said. “In the course of 2016 we will have to work much in order to apply this model starting in 2017 if such decision is at all taken.”

“This is quite a difficult process, fraught with quite a lot of risks… Yes this [model] has its positive sides, but there are lots of negative aspects as well, so it has to be thoroughly considered; no final decision has been made in which direction this reform will go,” he added.

The draft of 2016 state budget sets tax revenues at GEL 7.78 billion of which GEL 955 million is expected from the corporate income tax. (