Government Plans to Regulate Shadow Economy – will Tutors and Apartment Teachers Pay Taxes?
The Georgian government is set to regulate the shadow economy. Geostat, the national statistics service of Georgia, plans to explore the shadowy elements of the education and real estate market.
The agency will count the number of tutors and lessons, and their incomes. As estimated by the agency, about 13% of the economy remains in the shadow market, and the ratio of these two fields in particular is impressive. Most likely, both tutors and apartment lessons will be imposed, taxes paid after a fuller picture has emerged.
As noted by the financier Giga Bedineishvili, plans for regulating the shadow economy are not dictated by good intentions, and the key goal of the authorities is to fill the state’s coffers.
“When the authorities start implementing similar projects, it is difficult to find good intent. Naturally, there is nothing bad that businesses should operate on equal conditions, but this is not likely in good faith. They think that a certain part of the economy remains in the shadows, and they want to bring this sector into the light of day, tax it. This would be an expedient decision, if the authorities were willing to be lenient. Naturally, we should legalize this part of the economy, but we should also ask a question – do we need to collect so much money from the business sector, because I believe the authorities collect much more money than is necessary. We should just move to reducing and lowering taxes, not to monitoring every untaxed person and field and taxing all of them”, Giga Bedineishvili said. In the pre-election period, the authorities plan to increase the state budget as much as possible. Therefore, they seek apply every mechanism to tax as many businesses as possible, he noted.
“It is impossible to tax all economic activities at 100%. At the same time, it is unacceptable that only several businesses fill the state budget. Therefore, taxes should be collected from everybody, but we should pose a question – in reality, how many taxes do we need? The authorities squander so much money. In reality, we have a lot of resources to cut taxes, and then equally distribute the remaining burden onto every sector of the economy. Now they have recalled all these issues, because the elections are coming, and they want to prevent a budget deficit, they want to tax miserable tutors. They want to mobilize more money for the state budget. Furthermore, amid slower economic growth, the amount of collected taxes has also declined, and the Finance Ministry is seeking new channels”, Giga Bedineishvili said.
Some economic experts asserts that this initiative by Geostat enables them to assess the real volume of the economy, and potential investors will be able to properly choose their priorities. However, legalization of this segment of the economy will rise prices, and both tutors and apartments lessons have to increase prices.
It is unknown how Geostat plans to tax tutors or apartment lessons and register their incomes.
As explained by statistician and economist Soso Archvadze, the hothouse conditions for tutors have come to an end, and there are several reasons. Previously, graduates had to compete with each other to get enrolled into universities, while today, universities compete with each other to get students, and only 0.8 student is registered for every opening at a university, Soso Archvadze noted.
The demand for tutoring services is declining, but this does not mean that part of them will not continue to work. If we knew the precise number of tutors, Geostat would not have to explore the field. “According to the experts, tutors earn about 25-30 million GEL a year, while the population spends much more on education – 400-500 million GEL a year. The budget allocation for the education sector also grew –almost 1.4 billion GEL was spent in 2019, while the allocation for 2020 amount to 1.5 billion GEL.
Under the current legislation, tutors are subjected to income tax, but an inventory is not carried out, and this issue is left to follow its own course, and the state budget receives no benefits. Furthermore, an inventory of the field will not have financial effects, because the budget may receive only an additional 6-7 million GEL, however, this decision will bring about social justice and fiscal discipline.
All members of society, be it businessman, employees or those who earn their living through their own skills and talents, should realize that there are two key, inevitable aspects of a market economy – death and taxes. The fiscal effect is only a byproduct”, Achvadze said.
When asked what economic effect we will receive by regulating tutors, and whether they should pay income tax, join the pension system, and how unemployment and employment indicators will change, Soso Achvadze noted that the tutors, as a group, means that public schools cannot provide valuable knowledge. Therefore, the investigation of this field will be interesting. We will know which regions, cities or schools show the highest demand for tutors, and we will identify specific problems, Soso Archvadze concluded.