Are Bets Changing?

It is planned to change the structure of allocations for compulsory state social insurance in Azerbaijan. A bill is being prepared to optimize contributions for compulsory social insurance.

This was recently announced at the meeting with members of the public association Entrepreneurs and Industrialists of Turkey and Azerbaijan (TUIB), Deputy Minister of Labor and Social Protection Idris Isayev. According to him, in the near future the draft laws on regulation of labor relations and social insurance will be submitted to the parliament.

As is known, today the labor pension consists of two parts - basic and insurance. The size of the former depends on the state, while the second one depends on the amount of savings of the employed in the form of contributions for social insurance, paid during his work. The amount of this contribution has remained unchanged for more than ten years and is 25%: employers from the wage fund pay social insurance contributions at a rate of 22%, and 3% of the salary of the employee.

During this period, new rules were introduced to collect compulsory social insurance contributions. The new list of insured persons included tutors, nannies, housekeepers, cooks and private drivers who had labor contracts with employers, as well as owners of plots suitable for agricultural use, and owners of small farms. This step, first of all, was aimed at expanding the base of insured persons paying social insurance contributions, increasing fees and securing financing of pension payments. However, this plan of the State Social Protection Fund (SSPF) of the Ministry of Labor and Social Protection of Population failed miserably. They failed to attract individuals engaged in self-employment to the compulsory social insurance system. The fight against informal employment turned out to be less effective. Although labor contracts were concluded with employees, social insurance contributions were counted not from real wages, but from minimal official salaries. Therefore, it was not possible to ensure the profitable part of the budget of the SSPF at the proper level. In addition, the volumes of transfers from the state budget to the SSPF were impressive in figures. So, in 2016 transfers from the budget to the State Fund amounted to 1,246 billion manat.

Evasion from payments of social insurance by employers has acquired an even larger scale in the last two years, when the economic crisis with all the consequences arose in the country. The economy is in decline, the treasury has shrunk, and pension "infusions" were too heavy for the budget. In addition, tax and customs services are pressing on business. In these conditions, the business community urges to optimize the structure of social insurance contributions. They are supported by independent experts.

So, the Chairman of the Economic and Social Development Center Vugar Bayramov proposes to divide the social contributions between the employer and the employee proportionally. “If in Azerbaijan 22% of the social insurance contribution is paid by the employer and only 3% by the employee, in most developed countries this proportion is divided equally and is 50% by 50%. In several countries, an employee pays more than an employer. Under the current scheme of contribution payments in the country, the employer has to make tax evasion and apply the practice of double-entry bookkeeping, as well as hiring workers illegally,” says the expert.

Today, various options are considered for the structure of social contributions: 18% + 7%, 10.2% + 14.8%, etc. Several experts propose to lower the rate of a single social contribution altogether, with a simultaneous change in its structure. A reduction in the contribution rate for social insurance can encourage small businesses to exit the "gray" and "black" segments of the economy. This opinion is expressed by the independent economist Rahim Baghirov. “This will lead to an increase in the total collection of taxes. This approach has worked in many Western countries, including Germany,” he said. -0-