Baku and World Bank: Optimal business rules
    Caliber.Az review

    ANALYTICS  23 May 2024 - 11:05

    Khazar Akhundov

    Over the past years, Azerbaijan has made tangible progress in modernising its business legislation, creating a favourable investment environment and simplifying business regulation mechanisms. The effectiveness of these steps, supported by projects of international financial organisations (IFIs), has been repeatedly recorded in Doing Business reports and positive assessments by other international organisations.

    The government continues its efforts to optimise the business environment: the previous day, the Ministry of Economy of Azerbaijan held a presentation of roadmaps for 2024 on the topics of "Entry into Business" and "Taxation", implemented within the framework of the joint project "Business Readiness" with the World Bank (WB).

    The key objective of the economic reforms forced in Azerbaijan in 2019 is to improve the country's investment attractiveness and expand business activities in the non-oil economy, mainly with high export potential. To achieve this main goal, steps are being taken to implement the strategic programme "National Priorities of Socio-Economic Development: Azerbaijan 2030" and its most important component for the medium term - "Socio-Economic Development Strategy of Azerbaijan for 2022-2026". The programme objectives of these documents include the continuation of economic reforms to improve the quality of the business climate and the introduction of new incentives to increase the pace of private sector development in our country. This includes measures to modernise legal documents and regulations, implement international best practices in the area of business promotion, and plans to deepen fiscal reforms and liberalise business administration.

    It is appropriate to recall here that Azerbaijan has repeatedly achieved high positions not only at the regional but also at the world level in terms of optimisation of business legislation. Azerbaijan has repeatedly earned high marks in annual reports published by experts of the World Bank and the International Finance Corporation (IFC), a member of the WB Group: in particular, the republic has twice taken leading positions in the Doing Business 2009 and Doing Business 2019 reports, and was named one of the 20 most reforming countries in the Doing Business 2020 report.

    According to a report by the Eurasian Development Bank, Azerbaijan ranked fourth among CIS countries in attracting Foreign Direct Investment (FDI) in 2022. In the FDI Standouts Watchlist research published in January this year, based on the International Monetary Fund and fDi Markets monitoring data, Azerbaijan ranked seventh among the top 10 countries in the world regarding FDI attraction potential in 2024.

    The Doing Business surveys also assessed indicators of the favourable business environment based on ten basic indicators. In this respect, Azerbaijan has significantly advanced in terms of registration of new businesses and property, obtaining construction permits and connections to communications, operation of enterprises, payment of taxes, liberality of regulations governing the activities of small and medium-sized enterprises, etc. Azerbaijan was first recognised in the Doing Business report in 2006, ranking 98th, but in 2019, our country moved up to 25th place among 190 countries, making it into the top 10 leading reforming countries in terms of business environment transformation and simplification of the legislative framework in this area.

    Today, given the expected global energy transition in 2030-2035 and the likely decline in mineral energy prices in Azerbaijan, the key focus is on the development of green energy and the non-oil sector. Accordingly, steps to accelerate the process of optimising the business climate, openness to investors, and liberalisation of fiscal legislation are even more in demand in our country. The Ministry of Economy is implementing the relevant work with the support of the World Bank's experts within the framework of the Business Readiness Project: the previous day, the ministry held a presentation of roadmaps for 2024 on the topics "Entry into Business" and "Taxation". The presentation included discussions and discussions of reports with the participation of specialists from the State Tax Service (STS), Ministry of Justice, Ministry of Finance, Ministry of Foreign Affairs, Ministry of Labour and Social Protection, State Statistics Committee, Central Bank, Small and Medium Business Development Agency (KOBİA) and other structures.

    “The joint endeavour with the WB is based on such components as the functionality of business areas in the country, business rules affecting the development of the private sector as a whole. The project covered two important areas - indicators "Entry into Business" and "Taxation", and two-year roadmaps have been successfully implemented in these areas over the past period," Vusal Shikhaliyev, Head of Sector of the Presidential Administration of Azerbaijan, Head of Secretariat of the Commission on Business Environment and International Rankings, who presented the work on the WB Business Ready project, said at the event. The Head of Sector emphasised that the new roadmaps approved for 2024 contribute to bringing business support processes to a higher level, implementing several innovations, and helping finalise regulatory and technical mechanisms.

    The need for systematic updating and modernisation of business legislation is highly relevant given the rapidly changing global environment, the digitalisation of the economy and the financial sector, and other transformations within the framework of the Fourth Industrial Revolution (4IR). In this regard, Azerbaijan is consistently implementing reforms to improve the investment climate, including simplifying registration and business operations (single window regime, digital document management), while legislative and administrative reforms in the fiscal sphere contribute to improving the business climate and strengthening public-private partnerships.

    Amendments to the Tax Code adopted over the past five years have helped to reduce the fiscal burden, while expanding the taxable base, including by bringing unrecorded income of employees and the "shadow" turnover of industrial enterprises into the "light"; all processes for tax declarations and other fiscal documentation have also been digitised. On 1 January 2024, the Law on Public Procurement came into force, simplifying business access to tenders, and the Competition Code (CC) was recently adopted, aimed at encouraging investment activity by strengthening the fight against monopolisation of certain areas of the economy, suppressing unfair competition, etc. The country has created an appropriate legislative framework to encourage investors, attracting residents to half a hundred agro-parks and about two dozen industrial zones and neighbourhoods, and the activity of the industrial and logistics FEZ Alat is regulated on the basis of international legislative standards.

    Reforms of the legal and regulatory framework in the business sector will continue this year. Samira Musayeva, deputy head of the State Tax Service, head of the "Entry into Business" working group, said at the event that a number of innovations related to the registration of commercial structures with foreign investments will be introduced in Azerbaijan, and transformations in the sphere of state registration of commercial legal entities are also underway. In particular, technical capabilities have been created for the electronic regulation of commercial legal entity information, SIMA electronic signature for online registration of legal entities has started to be successfully used, information resources have been improved, etc.

    According to the State Tax Service representative, the roadmap for 2024 on the indicator "Entry into business" provides for the implementation of 16 different activities on two sub-indicators: "As part of the upcoming work, it is planned to expand the coordination of databases of state bodies involved in the registration process, to create technical capacity in connection with the maintenance of the register of beneficial owners". The roadmap for 2024 for the indicator "Taxation" provides for the implementation of 42 different measures within 9 components of 6 sub-indicators.


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