Fiscal reforms and digitalisation as Azerbaijan's tools to eradicate corruption
Anaysis by Caliber.Az

ANALYTICS  17 March 2023 - 16:42

World practice shows that the most effective method to fight corruption and shadow economy is to change the administrative and legal environment to minimize contacts of business with state bodies at the expense of virtualization of all procedures and increase of cashless turnover. This is the path Azerbaijan has taken in recent years. An effective anti-corruption system is being formed in the country, electronic mechanisms are being introduced in the tax and customs areas, cash transactions are being digitised, etc. On the eve of the event, initiated by the Agency for Development of Small and Medium Business (KOBİA) on the topic of "Management System for Fighting Corruption ISO 37001:2016", further improvement of anti-corruption mechanisms was discussed.

"Azerbaijan has an effective anti-corruption system that meets both international requirements and national goals, and we continue to adopt appropriate anti-corruption measures and standards. Today we see a significant reduction in corruption offences in both the private and public sectors. We should also note the increased role of law enforcement agencies in fighting corruption," said Nazim Rajabov, head of the Anti-Corruption Department of the Prosecutor General's Office, during an event on the "ISO 37001:2016 anti-corruption management system".

At the same time, he noted, the reform of administrative and legal mechanisms, as well as the digitalisation of all processes in the state-citizen tandem, are no less important for overcoming corruption negatives. To this end, since 2004 the republic has been working on the provision of transparent public services to the population, Rajabov emphasized.

In this regard, it is appropriate to mention the large-scale initiatives within the framework of the State Programme "Electronic Azerbaijan" to convert the entire system of public services into electronic format, which contributed to the creation of an extensive e-government portal (e-Government). The creation of the ASAN xidmət system, which was put into operation in December 2012, had no less anti-corruption effect, thanks to which the citizens of the republic received online and offline access to several hundred public services of most government agencies. All services are rendered in a completely transparent manner through a "one-stop shop" mechanism, which has freed the citizens of the country from the need to go through numerous offices, extortion and other bureaucratic abuses. Thanks to the digitalisation of most of the document flow mechanisms, the provision of certificates, permits and insurance policies in digital format, as well as the corresponding reforms in the public utilities and pension sectors, the country's social and fiscal structures in general have managed to greatly simplify relations between citizens and government agencies, overcoming the negative corruption that dominated in the past.

The next milestone, which began in 2018, was extensive legislative and administrative reforms to improve the business climate and strengthen public-private partnerships, which also achieved positive results. The amendments to the Tax Code (TC) adopted in 2019 have helped reduce the fiscal burden, while expanding the tax base, including by bringing "unrecorded income of employees" into the light, as well as the shadow turnover of industrial enterprises. For several years now, all processes relating to tax and customs declarations and other fiscal documentation have been digitised and the introduction of the new generation of cash registers has ensured transparent control of trade turnover. Transparency has also been assured in labour relations: contracts and agreements with employees have also been completely transformed into electronic format. The State Tax Service (STS) under the Ministry of Economy has implemented a large-scale digital transformation of tax administration, and today the share of voluntary payments in tax revenues from the non-oil sector is close to 90%.

Last year saw the launch of a large-scale customs reform, which is consistently combating abuses in foreign trade, increasing SMEs' participation in "green" corridors and ensuring transparency of administrative mechanisms through the digitalisation of all procedures.

At the same time, the participation of small and medium-sized enterprises (SMEs) in public procurement and tenders, as well as investment tenders and generally all privatisation mechanisms, has been digitised. This has played an enormous role in putting an end to "grey" schemes that prevent SMEs from providing services to the state or participating in denationalisation projects. The Law on Suspension of Business Inspections, adopted in October 2015, was also a major step in improving the business climate, which markedly reduced corruption pressure on businessmen: the document was so effective that it has been repeatedly extended by Parliament, once again until 2024.

"In Azerbaijan, the rights of 290 entrepreneurs were restored in 2022: our agency (KOBİA) is mandated to participate in protecting the interests of small and medium-sized businesses in the country and solve their problems. Appeals about violations of the rights of entrepreneurs are considered with the participation of relevant parties and individually," said Orhan Mammadov, chairman of the Management Board of the Agency for Development of Small and Medium Businesses of Azerbaijan, who participated in the forum "Management System for Fighting Corruption ISO 37001:2016". According to him, the main direction of KOBİA's strategy is to support the development of a favourable business environment in the country: "The formation of a sustainable anti-corruption environment is important not only in terms of business development, but is also the main condition for attracting foreign investment to the republic, maintaining its positive reputation internationally and ensuring sustainable economic development".

The list of highly effective anti-corruption mechanisms recently formed in Azerbaijan also includes work on the digitalisation of financial services and the popularisation of cashless payments carried out within the framework of the "State Programme on Digital Payment Expansion in Azerbaijan for 2018-2020". Large-scale reforms of the digital payment system, now in its fifth year, have accelerated the introduction of IT infrastructure and new software solutions in the banking sector, processing structures and other payment service providers. A special role in these processes is played by the Central Bank of Azerbaijan, which is successfully implementing the digital payments strategy for 2021-2023: according to the regulator, last year the volume of payments through online banking increased by more than 50% and payments through mobile applications by more than three times. The main goal of digitalisation of money circulation is related to ensuring transparency of taxable turnover, and cashless payments are the most effective method of combating the shadow economy and the corruption associated with it. The link here is direct, as experts estimate that a 10% increase in non-cash payments creates the conditions for a 5% reduction in the shadow economy.

In the near future, Azerbaijan plans to introduce new mechanisms to combat corruption and other abuses that are detrimental to fair competition. The State Service for Antimonopoly Policy and Consumer Market Surveillance under the Ministry of Economy has strengthened activities to improve digital solutions, in particular, a competitiveness portal is being finalised and simultaneously work has started on the development of a quality portal. "Fighting corruption is an essential tool for sustainable development and this work should not be ad hoc but systematic. One of the most important methods of fighting corruption is the formation of an open, transparent and competitive environment," Mammad Abbasbeyli, head of the State Antimonopoly Service, said at March 16 event. He also stressed that the process of approval of the Competition Code is at the final stage.

Caliber.Az