In the intricate dance of oil production, global price fluctuations, and the imperative of sustained funding for the State Oil Fund of Azerbaijan (SOFAZ), the Azerbaijani government approaches budget growth with caution. The 2024 state budget reflects a measured strategy, projecting revenues at 34,173 million manats and expenditures at 36,763 million manats—a marginal increase of 0.8% and 0.4%, respectively, compared to the 2023 forecasts. Despite modest growth, the anticipated budget deficit is set to be 5.3% lower than the preceding year.
A noteworthy aspect of the 2024 budget is the substantial contribution from SOFAZ transfers, reaching a record high of 12,781 million manats. However, it is crucial to recognize a projected decrease of 26.1% in SOFAZ revenues for 2024, amounting to 12,073.3 million manats, while expenditures are expected to rise by 8.9% to 12,900.2 million manats. Essentially, all SOFAZ revenues are earmarked for budgetary allocations in 2024.
To offset the budget, the State Tax Service and the State Customs Committee are expected to contribute 13,865 million manats (40.6% of income) and 5,900 million manats (17.3% of revenues), respectively. While broadening the tax base is commendable, concerns arise about potential disproportionate pressures on the populace and businesses, a trend that has become apparent.
In the context of the global economic landscape marked by inflation, Azerbaijan maintains an anti-inflationary policy, projecting annual rates within the target range of 4.3% in 2023, 5.5% in 2024, and 3.4% in 2025, attributing inflation to external and internal factors.
Azerbaijan displays robust financial indicators, with the central bank's foreign exchange reserves increasing by 33% to $10,615.9 million. The exchange rate remains stable, reflecting reduced demand for the dollar, and the country's total foreign exchange reserves stand at $66.4 billion, bolstering macroeconomic stability.
The banking sector exhibits steady growth in assets, loans, and key indicators. S&P Global Ratings underscores confidence in Azerbaijan's banking sector stability, emphasizing improved financing metrics and sound risk management practices. Concerns about the short-term nature of deposits have led to minor tax breaks for term deposits, targeting annual incomes up to 2.4 thousand manats. Economists question the rationale behind this decision, estimating its limited contribution to budget revenues.
A memorandum of understanding between the Central Bank of Azerbaijan and the Ministry of Digital Development and Transport signifies a significant step toward artificial intelligence development, influencing the digitalization of the banking system. Recent discussions emphasize the comprehensiveness of bank reports, assuring financial stability. Plans for the next three years and innovations in the financial sector signal a commitment to addressing challenges and integrating the banking system effectively into economic growth.
Finance
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The deduction of expenses for food, housing, and representative costs from income has always been a topical issue from a taxation perspective, frequently discussed in relation to the extent of deductions allowed for workers' food and housing expenses and entrepreneurs' representative expenses.
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This article examines public participation in budget management during the tenure of Samir Sharifov, who served as Azerbaijan's 5th Minister of Finance throughout a significant portion of the country's post-independence period. By analyzing his 19 years of service, we aim to assess his contributions and the Ministry's approach under his leadership.
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Previously, the classification of a taxpayer as high-risk was conducted solely on the initiative of the tax authority without reference to any legislative act, which naturally led to taxpayers’ legitimate grievances. Later, based on the practical experience acquired by the tax authorities in this area, on July 28, 2020, the Cabinet of Ministers adopted the decision to approve the “Criteria for a High-Risk Taxpayer, Including Risky Transactions.”[1] However, this document did not meet expectations regarding the identification of truly high-risk taxpayers, as the criteria determined were too strict in certain respects and, from a practical standpoint, half-baked. In my opinion, a key shortcoming of the decision is evident if one considers its lack of a mechanism for removing a taxpayer from the “black list” of high-risk taxpayers.
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The weakest aspect of the Tax Code of the Republic of Azerbaijan is its instability (volatility). The frequent changes in legislation (especially tax and customs regulations) are not only characteristic of the Tax Code but also of all normative legal acts in the country. This hinders taxpayers and entrepreneurs from implementing their plans for the future and negatively impacts the volume of domestic investments and the process of attracting foreign investments. Notably, taxpayers have repeatedly witnessed tax privileges and exemptions being granted without specified durations and subsequently revoked unexpectedly. Among the amendments to the Tax Code that will come into effect on January 1, 2025, there are provisions of this nature.
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