Azerbaijan's Economic Minister Hails Entrepreneurship amid Tax Concerns

On April 25, celebrated as Entrepreneur's Day in Azerbaijan, Economic Minister Mikail Jabbarov extended his congratulations to the nation’s business community via his social media on "X", lauding their contributions to the economy and the reintegration of liberated territories. According to Jabbarov, fostering sustainable growth and intensive entrepreneurship development remains a priority in the state's economic policies.

In his post, Jabbarov expressed gratitude to entrepreneurs for their role in enhancing the nation's prosperity. However, this gratitude is expressed at a time when the Azerbaijani business community faces looming financial challenges due to recent tax code amendments that have sparked widespread concern among microentrepreneurs.

Since January 1, the Tax Service under the Ministry of Economy has abolished a 75% tax benefit previously granted to microentrepreneurs, affecting businesses with an annual financial turnover below 200,000 manats and fewer than 10 employees. This sector now faces an increase in tax obligations, with a mandatory 20% income tax, aside from compulsory medical and social insurance contributions, leading to potential financial strain that could push some businesses towards insolvency or the informal economy.

Economic expert Rovshan Agayev, in an interview with ASTNA, criticized the heavy tax burden imposed on microentrepreneurs. "In no normal country in the world do microentrepreneurs face such a heavy tax burden," Agayev remarked. He explained that the tax benefit, which previously allowed microenterprises to pay only 5% income tax, has been a crucial support for small-scale entrepreneurs, particularly those who do not serve large legal entities but rather focus on local, smaller-scale services.

Agayev pointed out that the amendments could disproportionately affect individual workers or smaller teams who do not meet the new criteria of employing at least three people, thus facing a full 20% tax rate. This includes professionals like IT specialists, translators, and designers, who typically operate independently or with minimal staff.

These changes come as the government aims to clamp down on what it perceives as tax evasion among larger enterprises that might exploit the lower tax rate by distributing their turnover across multiple microenterprise entities. However, Agayev argues that the new measures may not effectively prevent such practices and could instead penalize genuine small-scale entrepreneurs who play a vital role in the economy.

The debate continues as stakeholders call for a more balanced approach that supports the growth of Azerbaijan's small and medium-sized enterprises without imposing undue financial burdens. Discussions suggest setting reasonable turnover limits that could allow smaller businesses to benefit from reduced tax rates regardless of their employee count, aiming to foster a healthier business environment conducive to growth and innovation.