b> While substantial capacity building in tax and customs requires long-term strategies, there are a number of essential short-term reform initiatives, which should be launched immediately, to improve revenue performance and reduce tax-related distortions. В
Tax policy . The main challenge is to stabilize the tax policy framework, and avoid ad-hoc short-term policy measures. In general, the revenue impact of tax exemptions should be properly analyzed, and no further exemptions/tax reductions should be introduced without such analysis is explicitly presented in Parliament. Any tax policy changes should be taken in the context of the annual budget. It also recommended that the 2001 tax package prepared by MoF be re-submitted to Parliament, including key elements such as: reducing the scope of exemptions, raising the VAT threshold to GEL 100,000 (or US $ 50,000) and introducing complementary simplified tax.
Tax administration. A number of actions could be take to support long-term reform efforts:
Discontinue the practice of soliciting advanced payments to meet revenue targets and Design a new performance measurement system with appropriate indicators, supplemented by special incentives to improve revenue administration practices;
Centralize revenue accounts in the Treasury and make payments on "a first come first served basis ";
Begin implementation of special program to control imports through the railway system, especially of petroleum products;
Increase coverage of LTI and focus on improving LTI performance.
Prepare legislative changes to reintroduce sufficient powers for the tax administration to enforce tax collection.
A Longer-term Agenda. A more comprehensive reform program for the medium and long-term reform of the Georgian revenue system will then need to consider the following issues:
Broadening the base and lowering tax rates. While some taxes may be relatively high and may promote non-compliance - especially the general VAT rate of 20 percent and the combined tax burden on labor - taxes from excisable products are not fully exploited. A longer term tax policy reform objective for a poor economy like Georgia should be to reduce the tax burden on consumption and labor. However, this can only be achieved by (A) broadening the tax base of VAT and profit/income taxes; (b) increasing collection by improving the efficiency and effectiveness of tax and customs administration.
Past experience with tax policy reform in Georgia has shown that mere tax rate reductions without corresponding improvements in enforcement and compliance management will not contribute to increasing tax compliance. Rate reductions therefore do seem not feasible as long as revenue losses from the rate ...
