GEO

The reasons why we do not agree with the President's proposed fiscal amnesty

26 February, 2013

On 31 January 2013, the President of Georgia submitted the draft law on Amnesty and Non-declared Tax Obligations to Parliament, along with Property Legalization that provides for the exemption of responsibility for persons who have committed certain types of financial and economic crimes. We believe that the spirit and substance of this draft law raises many questions and not only contradicts the principle of restoration of justice, but also the concept of a competitive business environment.

More specifically, the draft law envisages:

A) To discharge persons from criminal liability, who committed the following crimes punishable under the criminal code before January 2013: money laundering (Article 194); violation of the rules for participation in public procurement (Article1951); falsification (Article 197); illegal shipment or sale of falsified items (Article 1971); false advertising (Article 201); non-disclosure of property through fraudulent and/or hypocritical deal (Article 2051); consumer fraud (Article 219); violation of the rules for customs border transportation of goods (Article 214, Parts 1 and 2), and other corporate and economic crimes. The project also aims to terminate proceedings in the investigation bodies or courts, concerning crimes committed before 1 January 2013;

B) The outstanding or unfulfilled tax liabilities of persons, arising before January 2013, shall be deemed fulfilled and will not be subject to criminal prosecution, administrative or other legal proceedings. At the same time, the government bodies shall not be allowed to make any revisions with regards to the abovementioned taxes;

C) Within 3 months from the entry into force of the law, persons will be allowed to legalize their illegally acquired property, by submitting their property declarations. After which, any unfulfilled legal liability in connection with such property, incurred before January 2013, shall be deemed fulfilled. It is also noteworthy that the data entered into the declarations shall be confidential.

According to the explanatory note of the draft law, the amnesty initiation aims to improve the business climate in Georgia; however, whether or not the initiative really served this purpose remains arguable. It is also unclear as to how big the financial losses to the budget will be, of which the explanatory note makes no mention.

One of the most problematic issues is the unequal conditions for businessmen. Specifically, at the expense of honest businessmen, the draft law will create favourable conditions for those who concealed taxes, deceived customers, violated customs regulations, or have otherwise accumulated tax arrears. The situation is further exacerbated by the fact that such debts in recent years were accrued, as a rule, by companies that were associated with the ruling circles. It was basically this category of businesses that were excused for different types of tax and financial misconduct. In the past, such an initiative was, for example, implemented in connection with televisions. At that time, it was the so-called pro-government TV channels that had accrued large financial debts, which benefited from it the most. One gets the impression that this amnesty serves those very objectives.

It also remains ambiguous as to why any inquiry, investigation, or other legal proceedings against the perpetrators of crimes is terminated under the draft law, along with the fact that hidden taxes or illegally obtained property is fully retained by them.

Besides, financial amnesty is not usually announced long before it occurs, in order to ensure that such news does not encourage tax evasion by businesses that hope to receive redemption for their actions. This is exactly the kind of problem we may be dealing with in this case. The present amnesty law advances talks on the initiative to exempt financial and economic crimes, or violations committed before 1 January 2013, thus preceding the appearance of the draft law itself.

For all the above reasons, we consider that the draft law should not be adopted in this form.

Author: TI Georgia