Labour transparency: Azerbaijan's positive developments in job market
Caliber.Az review

ANALYTICS  08 March 2024 - 10:51

This year Azerbaijan has recorded positive developments in the labour market, as well as overcome several negative factors related to the global recession and inflation, which influenced the decline in business activity.

Export demand and the resulting increase in production in the non-oil sector has generally increased the need for labour. The increasing scale of infrastructure and construction projects in the Karabakh region, as well as self-employment initiatives, have also contributed to the creation of new vacancies. Positive developments in these areas are evidenced by statistics from the State Tax Service (STS) under the Ministry of Economy, according to which the number of labour contracts concluded has increased.

The ultimate goal of the large-scale legislative and administrative reform in the area of taxes, which has been underway for over five years, is to improve the business and investment climate, expand public-private partnerships, and ensure transparency and digitalisation of control processes and document flow. Among other things, the steps to optimise tax administration are intended to ensure a fuller involvement of business entities and labour market participants in the area of fiscal control.

Until relatively recently, the situation in this area was very complicated: facts of "double" accounting were widespread when the real "envelope" salary of hired employees significantly exceeded the amounts indicated in the documents for tax reporting. Many individuals hired by small and medium-sized enterprises (SMEs) worked without employment contracts, which deprived them of decent social (pension) security in the future, not to mention the inaccessibility of a social package, paid holidays, ballot payments, fixed working hours, overtime payments and other benefits provided for by the Labour Code.

In order to overcome this negativity, the regulatory framework of the Tax Code (TC) has been reformed since 2019, and along with the direct reduction of the income tax burden, other steps were taken to incentivise business, which subsequently reduced the volume of unrecorded profits and the withdrawal of the turnover of the "shadow" market, bringing it under the accountability and control of the fiscal authorities. The priority of the tax reform was to fundamentally change approaches to taxation of employees' income in the non-oil sector, as well as to regulate the ratio of state social insurance payments between the employee and the employer.

In general, the STS 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 per cent. This work was actively continued in all subsequent years: for example, in 2023, as part of measures to ensure fiscal transparency, an additional 1.1 billion manats (slightly over $647 million) was transferred to the state budget. There was also a marked improvement in the declared turnover of domestic production and trade, the level of documentation of trade transactions and the share of electronic accounts in turnover increased, and, of course, the fruits of the reforms were evident in the growing number of labour contracts.

Currently, after several years, the country has made tangible progress in the field of labour market transparency. According to the STS data published the day before, as of 1 March 2024, the number of employment contracts in Azerbaijan increased by 432,700 compared to the beginning of 2019, and the total number of agreements reached 1,834,629.

"About 26,000 new labour contracts have been concluded in Azerbaijan since the beginning of this year, of which more than 23,000 - in the non-oil private sector," Economy Minister Mikail Jabbarov wrote the other day in social network "X". The number of labour agreements in the non-oil private sector exceeded the indicator in the public sector (excluding the oil and gas industry) by 59,000, with the share of labour agreements concluded in the non-oil private sector accounting for more than half of the total number of agreements".

The reforms aimed at "whitening" the labour market indirectly affect the indicators of fiscal activity of the private sector: the share of the non-oil sector in tax revenues last year exceeded 74 per cent. In turn, as of January 1, 2024, the number of active taxpayers in Azerbaijan amounted to 761,700, which is 7 per cent more than at the beginning of 2023, and the development of this trend promises further growth of activity in the labour market.

According to the Ministry of Labour and Social Protection of Population of the AR, last year employment centres provided 118,400 people with jobs, 17,400 people were involved in self-employment programme, 9,500 people were sent to vocational training courses. Moreover, thanks to the efforts of recent years to rehabilitate the labour market, all new vacancies were registered in accordance with the regulations of the labour and tax codes.

In turn, an important element in ensuring transparency in labour relations has been the complete conversion of agreements and contracts with employees into electronic format, and last year the processes of including this information in a single digital register were accelerated.

Currently, all processes in the Ministry of Labour are digitised and 140 services are provided to citizens through an electronic platform, including in the area of employment and the conclusion of employment contracts. All these innovations not only enhance fiscal transparency but most importantly, improve the social security of the citizens themselves, because thanks to the digitisation of all data on their employment activities, the process of their archiving and subsequent access to them has been simplified and accelerated many times over. The latter is extremely important and will eventually make the process of processing labour pensions, disability benefits and other social services much easier.

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