How is tax system in Azerbaijan efficient?

How is tax system in Azerbaijan efficient?

Interview of Mr. Fazil Mammadov, Minister of Taxes, Second-rank state tax councillor to foreign mass media.


Mr. Minister, Azerbaijan as a developing state of the region, as well as a country that pursues an active European integration process experiences the period of very dynamic changes. The Ministry of Taxes headed by you has some achievements in the area of implementation of modern management in your country. Has it been difficult to implement it in taxation service which is an active participant of economic processes?

– The taxation service modernization process started in Azerbaijan approximately 10-11 years ago. Then Heydar Aliyev, the late national leader, the previous President of Azerbaijan charged us with very serious tasks when signing the decree on establishment of Ministry of Taxes. Our country experienced the period of revival and Azerbaijan started to make its contribution to energy sector in both regional and world scale. The structure of economy was changing and diversifying, and the private business was developing into main factor of economic life of the country. In such a phase the modernization of taxation service was an important task assumed by leadership of the country. When launching this process a number of key goals were put forward. These included improvement of legislation, establishment of taxation management based on up-to-date standards and development of wide range of taxation services.

Gradually the large-scale reforms started to be implemented in the taxation system having acquired serious political support in the person of President of the country. As you know this factor is important for every serious reform implemented in the area of economy. I think that in fact the attitude of leadership of the country to the implemented works played an important role in all successes achieved by the taxation service. In these terms in fact we also had some luck because both Heydar Aliyev, the National Leader and Ilham Aliyev, President were the persons with quite demanding, open and pragmatic views in regard to economic reforms.

The adoption of Tax Code – the main legislative document of this area countrywide was achieved in a short space of time. This is a complex process and adoption of such a Code is the process that requires long time and great efforts. We not only finalized this process within a short space of time but also managed to correct errors beforehand having studied the problems encountered later by other countries which had adopted their Tax Codes and to develop a more customized legislative document for Azerbaijani taxpayers.

During the last 10 years Azerbaijan undersigned very significant achievements in the area of mitigation of taxation load, modernization of taxation management, and implementation and expansion of information technologies in taxation service. We have managed to establish efficient taxation tools, to build the adequate and flexible taxation system compliant with changing and rapidly growing volume of economy. Today the Azerbaijani economy accounts for 80 percent of economy of the Southern Caucasus. There are over 400 thousands taxpayers in our country. The Azerbaijani taxation system renders services to the largest economic system of the region.

The taxation service is one of the proactive participants of the process of establishment of electronic government in Azerbaijan. What steps were taken by the Ministry of Taxes in the area of implementation of up-to-date standards during the recent years?

– The main line of the reforms implemented by us in taxation system during the recent years is to achieve securing of success in all areas of the taxation service as a whole by ensuring improvement of the service in terms of technology. The Ministry of Taxes started the process of electronization of the services to be considered an integral part of the electronic goverment in 2005 and the wide State Program was implemented for improvement of tax administration in the taxation system.

As a result of dialogue and wide exchange of experiences with the international financial institutions, as well as our foreign partners firstly the technological foundation of the taxation system capable of integrating within itself the mobile and wide-range technical capacities was established. The implementation of Automated Tax Information System (AVIS) giving the opportunity to conduct tax administration processes in electronic mode was achieved in 2006. This gave us the opportunity to store and process data in the integrated information space and to ensure electronic document circulation and rapid information exchange. We could fully electronize all intra-system processes within short space of time.

The quite broad technical capacities have been designed for AVIS. When establishing this system we envisaged to apply thereby to taxpayers the most up-to-date practices existing in the area of electronic services during the forthcoming period. All these were surely implemented in parallel with the process of fulfillment fiscal tasks stipulated in the budget. Of course, the economic growth in the country, the intensiveness of economic relations influenced the opportunities for more radical change of the system. Moreover, the created circumstances were favorable for implementation of these reforms and I would like to reiterate that we had political support in the person of leaders of the country which was necessary for implementation of the reforms.

Therefore in the next 5 years the implementation of more serious projects was started. In 2007 the Internet Tax Office portal of the Ministry of Taxes, one of the largest state portals was commissioned and the mailing of declarations in electronic format was launched. The implementation of electronic declarations system in general had significantly reduced the time required for development and ending to a tax agency of the declarations. Currently on average 90 percent of declarations submitted by taxpayers to the Ministry of Taxes is sent in electronic format.

During the past period the opportunity for use of electronic tax invoices by taxpayers, and for benefiting from “Online record keeping” system facilitating correspondence in electronic format between citizens and state agencies was created. A personal electronic mail box was created in webpage of the Ministry for every taxpayer so that the taxpayers could obtain thereby any document of informational nature related to the taxation system.

Since 2008 the implementation registration of entrepreneurial entities using the one-stop shop principle has been an integral part of the electronic services rendered by us and is very positively appraised by taxpayers and international organizations. It is worth mentioning that Ilham Aliyev, President of the Republic of Azerbaijan personally participated in presentation ceremony of the one-stop shop system. The successful application of this system in state registration of commercial entities later on gave impetus to application of the one-stop shop principle in other areas as well.

This process is continuously modernized. Since 1 July 2011, registration of private individuals engaged in entrepreneurial activities has been carried out electronically. Now, anyone interested in becoming an entrepreneur can complete the official process of registration in a matter of several minutes. Opportunities for the electronic submission of most applications envisaged for businesses have been created this year. The process of registration of cash registers widely used in cash payments in Azerbaijan has also been put on electronic rails.

In 2008, the application of VAT deposit accounts commenced for the first time in the history of Azerbaijan, enabling effective electronic control over VAT administration. The application of a single VAT account has created suitable conditions for the prevention of VAT evasion and reduction of the VAT burden for taxpayers.

Thanks to the information technologies we are using, electronic liaison has been established with a number of government agencies and most banks, enabling electronic exchange online. These are only a few of the reforms we have carried out in the field of electronic services in recent years.

How has the application of electronic services benefited private enterprise development in your country? How would you describe the measures being taken to create a favorable investment environment in Azerbaijan?

There are two approaches to viewing the reforms accompanied by the application of modern technologies to the tax system. If you approach the reforms from the standpoint of tax authorities, we may observe a more sophisticated control procedure. From this perspective, control has enabled an analysis of tax statements and a transparent procedure of control over the payment of taxes using software. The carefully designed and introduced analytical measures have increased tax collection and facilitated the gathering of valuable information, which is highly important for identifying future directions of the tax policy.

In the view of taxpayers, tax reforms processes related to the payment of more taxes make conditions for the reduction of duration and expenses of taxpayers, at the same time it is related to the fact that tax payment process is simple and convenient.

In our opinion, this makes a direct impact to the taxpayers to be more loyal and to increase the level of being voluntary in the process of carrying out their payments. Today in Azerbaijan 90 percent taxpayers present their declarations, and 80 percent carrying out their tax payments in time. This is a high indicator in comparison with the developed countries, and I consider this is one the most important achievements that we gained in fact.

On the other hand, information and communication technologies play an important role in ensuring of transparency in the activity of state agencies. E-services strengthen confidence to the state body, as well as it contributes to prevent the corruption and procrastination. At the same time, this process stimulates to the transparency of taxpayers activity, and make use new technologies.

Overall, successful development of business depends on the establishment of operational mechanisms that makes opportunity to eliminate all problems in maximum fast and convenient way which state agencies faced in the operation process. In tax system we have maximally tried to simplify this process. Nowadays anyone who wants to be engaged with the business can easily pass through the state registration, can send his (her) declaration not coming to the tax authorities, can pay taxes, and can be informed on the issues that concerned him by phone 195 which is our special service 24 hours a days. By the way, 195 phone information services were awarded “EN-15838 Quality Standards” by “International Certification and Survey Centres Institute” which is representative of “Austrian Standards Plus” in September, 2011.

To make business is easier and more profitable in Azerbaijan day by day. If we measure in terms of taxation, Azerbaijan indicators on the sub-indicators of simplicity of complying the tax legislation norms is higher either regional or the average of world indicators according to the reports “Doing Business 2012” of World Bank and “Paying Taxes 2012” of PWC Company. Our country has made considerable progress 26 steps in rating of simplicity of tax payments in 2011 according to the report “Paying Taxes 2012”.  I consider this is an obvious figure in simplicity of taxation processes in our country.

2012 will be the important year in order to develop e-government.  Which any updates is the Ministry of Taxes going to apply in the near future?

The decree of Mr. Ilham Aliyev, the President of the Republic of Azerbaijan on “Measures in the organization of e-services in State agencies” dated 23 May 2011 put serious duties for closed perspectives in front of state agencies. We see 2012 as a year of serious changes in the field of e-government. I consider that in a short space of time you will be witness of great changes in this field in Azerbaijan.

Azerbaijan tax services will be active participation of this process. Ministry of Taxes intends to complete the implementation of tax system by the new technologies entirely in the near future and the implementation of relations between tax agencies and tax payers without any contact, only by electronic means and achieve the provision of the e-audit. In 2012 state registration of legal entities will be in the electronic format. After provision of e-registration of commercial legal entities either procedures or expense capacity and durations will be reduced. From 2012 the payment of tax and customs will be carried out by internet. Tax inspections will be conducted electronically in near future. The latest and progressive services which are applied in modern world will be applied in our country, too.

We try to establish attractive, simple and the same time transparency and stable tax system for competitive investors. The tax policy of our country is ground for carrying out an efficient and competitive economical policy in the region. For instance, as the main factor of the attractiveness and competitiveness of economy there isn’t any restriction for income repatriation, and one of the main terms is prohibition of discrimination between foreign and local tax payers. In this regard adaptation of investors to the tax system of our country is enough simple.  Inadmissibility of double taxation has been defined according to the Tax Code. Nowadays, it has been signed international agreements on avoidance of double taxation on the property and income with 41 countries, and it is continued works on such projects with 17 countries.

In accordance with the requirements set by the President of the country in front of us we are trying to create partnership relations between public and private sector based on mutual benefits.  A special attention will be offered to taxpayers based on modern information technologies and being reliable in tax administration in any space of time and place.

We also are trying that taxpayer not to accept tax service as an observing body, but to see it as a reliable partner to come up with any problem. In this regard, the process of formation of professinal staff  of tax servixe is being continued.

The movement of capital flow in the modern world, the allocation of financial resources in sufficient large scale area, the attraction of investment for the development of non-oil sector in economy, as well as  the transformation of modern business activities to electronic format creates a foundation for tax system to become a public service with more flexible conforming opportunities to meet market requirements. Our government is to continue this policy more actively in coming years.



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