All in the Numbers

What measures have been taken to ensure the sustainability of Azerbaijan’s development against the backdrop of an ongoing international economic crisis?

The year 2015 will be remembered as one of successful development for the economy of Azerbaijan. Azerbaijan’s GDP saw growth of 1.1%, while industrial production grew by 2.4% and the non-oil sector by 8.4%. Timely measures concerning the development of the non-oil sector taken by President Ilham Aliyev worked to minimize the impact of the global crisis. Azerbaijan’s tax legislation is not only being used for fiscal purposes, but also to develop the economy to stimulate the growth of various fields and attract investments and new technologies, while also supporting the social sector. The Ministry of Taxes conducts important tax-budget analyses in order to expand the taxable base and to use the tax potential of Azerbaijan more efficiently. The Ministry focuses on the expansion of taxpayers’ rights, the reduction of tax burdens, the improvement of tax administration, the increase of budget revenues by strengthening the fight against tax evasion, and the development of entrepreneurship. It particularly encourages the expansion of SMEs.

The legislative documents on amendments to the Tax Code have already been approved under the decree of President Ilham Aliyev. What were the main amendments and what made them necessary?

The amendments made to the Tax Code aim to reduce the tax burden and simplify the tax administration, creating a more favorable business environment. According to the amendments, taxpayers with a monthly income up to AZN2,500 and annual income up to AZN30,000 will be eligible for tax relief. Simplifying the tax administration, the amount of taxable turnover that requires an obligation to apply for VAT registration has been increased from AZN120,000 to AZN200,000. The increase will allow the taxpayers with turnover less than AZN200,000 to continue their businesses within the simplified regime of taxation. Also, people engaged in trading and catering activities are entitled to be registered as simplified taxpayers, regardless of their turnover. The mechanism of taxation of income from the sale of real estate has been further simplified and the tax burden in this area has been significantly reduced. Winnings from sports betting are now subject to withholding tax as well, which will lead to an increase in non-oil sector revenue. Moreover, the list of VAT-exempted priority import areas has been included into the Tax Code. This list can be changed only after being discussed in the Milli Majlis (National Assembly) and approved by the President. To assist in this, the Azerspace telecommunication satellite and new participants in this market, satellites, and other spacecraft, have been exempted from property tax.

2015 saw several structural changes related to the improvement of the tax administration in Azerbaijan. What was the necessity for creating new structures and are any steps expected to be taken in this area in 2016?

Overall, 2015 saw a number of structural changes in the Ministry of Taxes aimed at improving the control functions of the tax authorities. This brings it more in line with modern requirements, strengthens organizational measures in tax collection, and increases the effectiveness of measures taken for shaping the tax culture and discipline of the population. We prioritize factors such as management quality, efficiency, and the balancing of the interests of the state and taxpayers. Thus, the Ministry has undergone structural changes to collect taxes more efficiently, improve the work in the field of fighting against tax violations and crimes, ensure the full and timely fulfillment of obligations of taxpayers who have debts to the state, increase the effectiveness of control over the regional tax offices, ensure full and timely payment of taxes, and increase control over the consideration of citizens’ appeals.

The Republic of Azerbaijan has made a considerable achievement in attracting FDI to the country. What tax reliefs are in place in Azerbaijan for foreign corporations that help promote FDI and enhance investor confidence?

The attraction of foreign investment to the economy is an important component of the foreign economic policy of Azerbaijan. The total volume of investments attracted in the last 20 years exceeds $190 billion, about half of which was from foreign investors. The active involvement of foreign investors in Azerbaijan stems from the attractive investment climate in the country. According to the Global Competitiveness Report of the World Economic Forum, Azerbaijan stands at ninth in the world for the stability of the macroeconomic environment. Azerbaijan is ranked 40th out of 150 countries for global economic competitiveness and has been first in the CIS region for seven years. The inflow of FDI has led to an increase in the export capacity of the country, growth of production, integration of modern market relations in the field of entrepreneurship, import of new technologies into the country, and rebuilding of the national economic infrastructure as a whole. One of our goals is to attract foreign investors to the country through the creation of a favorable tax environment. A number of international agreements have been signed, covering the promotion and protection of investments, the avoidance of double taxation on property and income, and transport and loan agreements.

How do tax relief practices for certain domestic industries fit into the Ministry’s general development strategy for the country?

Among the factors boosting the dynamic growth of the non-oil sector, the introduction of tax reliefs and the formation of a favorable tax environment are of significant importance. Exempting agricultural products from taxes has had a positive effect on the development of regions, employment, and securing the food safety of the country. Income tax exemptions of the population’s bank deposits and dividends on securities expands the resources of banks by encouraging the turnover of free cash and further developing the securities market. These reliefs protected the national finance and banking sector from the adverse effects of the global crisis. We have exempted industrial parks from taxes for seven years to restore the industrial capacity of the country, increase the share of this area in GDP, support the manufacturing and export of products in the non-oil sector, and create new jobs. The Ministry of Taxes constantly focuses on ensuring a transition to an active tax policy from a passive tax policy, optimizing tax rates, creating equal and fair conditions for taxpayers, ensuring efficiency, competitiveness, and transparency.

How do you assess the importance of international events that have been held in Azerbaijan in recent years and those that will take place in 2016?

Azerbaijan has hosted a number of international events in recent years. These events promote Azerbaijan as a sporting country and also add huge support to the development of our economy as a whole, in both tourism and investment. Realizing Azerbaijan’s tourism potential fits our country’s policy of expanding the capacity of the non-oil sector. The 2015 Baku European Games was a celebration of Azerbaijan. For important events such as 2016 Formula One Grand Prix, Chess Olympiad 2016, Islamic Solidarity Games 2017, and four matches of UEFA Euro 2016, the infrastructure is also important to promote our national economic potential.