Azerbaijan opens up new opportunities for entrepreneurs as it reduces tax burden on business Analysis by Caliber.Az

A package of budget documents recently adopted together with the Law "On the State Budget for 2024" provides for several tax benefits of a social nature next year. Steps have also been taken to reduce the tax burden on entrepreneurs. In this respect, amendments and additions have been made to the Tax and Customs Code, as well as to the legislation on State Taxes. In particular, taxes on interest income from long-term deposits have been reduced. Relief was provided for property tax in the hotel sector, the VAT exemption for imports of raw materials and supplies was extended, the mechanism for partial VAT refunds in the retail sector was extended, tax incentives for the agro-industrial complex were extended, and tariffs on smartphone IMEI codes were reduced.

A very challenging 2023 is coming to an end, with geopolitical instability and wars, a sanctions confrontation between the Western and Eastern blocs that led to the collapse of logistics and production chains, high inflation and recession in the EU and the US. In addition, global economic crises, risks in the monetary sector and a high probability of continued volatility in commodity prices may accompany the global economic system next year. In this context, it is not surprising that the International Monetary Fund (IMF) was recently forced to revise its global GDP forecast downwards from 3 per cent this year to 2.9 per cent next year. By comparison, global economic growth indicators for 2022 are at 3.5 per cent.

All these negative effects on trade, traffic, customs, inflation and other factors have more or less affected the dynamics of our country's economic development. According to the State Statistics Committee, in the first 11 months of this year, the economic growth rate increased to 0.8 per cent, which is not very high.

In a conservative scenario, the Milli Majlis adjusted the parameters of the recently approved budget package for next year and reduced the investment expenditures of the state budget in several areas, taking into account the external risks mentioned above. At the same time, the members of the government and the deputies, when formulating the budget policy for 2024, were aware of the need to support the private sector by reducing the tax burden. According to the Chamber of Accounts, the volume of tax and customs benefits for 2024 has increased significantly and is estimated at 8.362 billion manats ($4.8 billion), which is 3.5 per cent higher than the figure expected for 2023. In particular, next year's budget package is expected to reduce the state budget's revenues from the State Tax Service (STS), which is explained by the government's plans to reduce the tax burden on businesses and citizens. In this regard, amendments have been made to the Tax and Customs Codes, granting privileges and exemptions from several payments to stimulate business activity and expand the tax base next year.

In particular, in the package of documents on the state budget of 2024, the reduction of the tax burden will consist of benefits of a mainly social nature, directly affecting the interests of ordinary citizens. In particular, from next year, tax exemptions will be applied to income from bank deposits of individuals: thus, if an individual places a manat deposit in any bank in the country for 18 months or more, the interest income on the deposit will be fully exempt from tax for three years. Moreover, if a bank deposit in national currency is placed for less than 18 months, the deposits are exempt from tax even in this case, provided that the monthly interest income does not exceed 200 manats ($117). This important innovation is designed to encourage citizens to place their deposits in the national currency for long periods, which is certainly beneficial for banks, as it will allow them to increase the volume of long-term lending. One should not lose sight of the psychological moment, connected with the fact that for the last seven years, all annual interest income on deposits of the population was exempted from income tax. The exemption expired on February 1, 2023, and since then interest income on deposits has been subject to 10 per cent withholding tax, which was initially met with some confusion among depositors. Now there is an alternative in this area, which gives citizens legal grounds to use the exemption by increasing the term of the deposit or paying the required 10 per cent income tax.

Other changes in the Tax Code affecting the broad masses of the country's population are also noteworthy: for example, from next year, income received through the VAT refund programme paid by consumers - individuals will be exempt from taxation. It is also planned to increase from 1,000 manats ($588) to 2,500 manats ($1470) the income tax exempted part of the cost of gifts and a one-time allowance for tuition fees.

Another long-demanded area of tariff benefits was the amendments to the law "On State Duty", which came into force in mid-December, providing for the reduction of fees for registration of IMEI codes of mobile devices. According to the country's leading telecom operator AzInTelecom LLC, which supervises this sphere, the state duty charged for registration of mobile devices imported into the country for personal consumption by individuals will be as follows: for cell phones with a market value of less than $100, without a camera, video recording and Internet access functions - 15 manats ($8.8), with a value up to $100 - 20 manats ($11.7), from $101 and up to $200 - 30 manats ($17.6), from $201 to $400 - 40 manats ($23), from $401 to $700 - 50 manats ($29), from $701 to $1000 - 70 manats ($41), over $1001 - 100 manats ($58).

Several priority areas in the area of private entrepreneurship will also see tangible fiscal relief next year. In particular, the day before, the head of state signed a decree on the extension of customs privileges (VAT exemption until December 31, 2026) for the import of 36 types of raw materials into the country. The list includes raw materials and supplies for the agro-industry, including livestock, mineral fertilisers and various vitamin preparations for the population. Tangible tax incentives will also be provided for tourism enterprises in the regions of the republic: the real estate tax for hotels, sanatoriums and other hotel-type facilities will be reduced by 75 per cent, except for locations in Baku, Sumgayit, Khirdalan and Absheron districts. These incentives will be introduced for three years from 2024 and are aimed at reducing the tax burden on businesses (given the large area of recreational facilities, the share of property tax is quite high), as well as stimulating entrepreneurial activity in the regions. Amendments to the TC also included the conditions for tax holidays for micro-enterprises to stimulate the development of individual entrepreneurship, including tax exemptions for micro-enterprises in the amount of 25 per cent of their social security contributions. However, these exemptions do not apply to micro-entrepreneurs with more than three employees who are in arrears with compulsory state social security contributions. This category of micro-enterprises will pay a tax of up to 20 per cent of income instead of 5 per cent from next year.

Certain tax benefits are also planned for private medical centres, hospitals and private doctors' surgeries if they are used as training centres.