Profits derived from the sale of real estate or cars will be subject to 5% tax on profits instead of the current 20% – the corresponding law is being developed by the government and will be handed over to Parliament.
It is also planned to reduce income taxes received from rental apartments from 20% to 5%. Currently, individuals pay income tax in the case of the sale of movable or immovable property in a certain period after the acquisition.
Economists positively assess the initiative of the government, and believe that it will not have a negative impact on the state budget. According to the head of the Georgian Reforms Association Beso Namchevadze, in the first year or two such initiatives can cause some damage, but in time the turnover grows, the taxation eventually returns to its previous level. “Thanks to the new law, the amounts went into the shadows because of the high taxes, will now go to the budget,” – he says. The analyst Levan Kalandadze agrees with this approach.
“Now people prefer to pay nothing and specify unrealistic amount in the contract for the sale as 20% is too much. When the tax reduces to 5%, then they will not have such motivation and will not violate the law because of such a small amount. As a result, the accounting of revenues in the sector will be more reliable, and the state will have information about the real state of the market,”- he says. In his words, this decision will contribute to the growth of tax culture in Georgia.
Vakhtang Lezhava, a representative of the Center for Policy Analysis, considers the decision to reduce the tax is positive, but in his opinion, it will not have much impact on the growth of budget revenues.
“In general, any tax cut is a good signal to business and the public, but in this particular case, this initiative is unlikely to have serious consequences, as it relates to a very small segment of the population. Very few people are paying these taxes, so the effect will not be special. In general, it’s a good thing that the tax will decrease if accordingly budgetary costs are reduced that do not generate tax effects and do not promote the growth of economic activity, “- the expert adds.