The abolition of the 75% tax benefit is a strange concern for small entrepreneurs

Since January 1, a 75% tax benefit has been abolished for individual businessmen who fall under the category of microenterprise and do not create jobs for three or more employees. Now individual entrepreneurs will pay a 20% income tax, whereas before the beginning of the year they paid 2-5%, depending on the place of business registration.

Microentrepreneurs without hired workers are the most low-income "businessmen" who earn by their own labor. Many have not even hired accountants, but have created a new product in the field of goods and services and bring income to themselves and the country. With the deprivation of their 75% benefit, it makes no sense to report income and pay taxes to a large number of microentrepreneurs - journalists, teachers, artists, musicians, realtors, craftsmen (repairmen and builders), couriers, cleaners, security guards, etc.   They can go into the "tax shadow", in other words, transfer their work activities to a non-contractual format with payment of salaries in cash.  To prevent the "flight" of this category of businesspeople, punitive measures are provided in the form of tougher penalties for tax evasion. But people can simply stop working, considering such work unprofitable. Then the budget will lose tax deductions from work to 335 thousand 306 hardworking citizens. According to the State Statistics Committee, there are so many microentrepreneurs registered in Azerbaijan working with a 75% tax benefit.

Simultaneously with the introduction of 20% taxation, a decision was made on some benefits when paying the monthly contribution for compulsory social insurance. Microentrepreneurs - individuals are exempt from paying 25% of compulsory social insurance at the end of the quarter and year. Moreover, these 25% will be deducted from the 20% income tax. This new benefit will be valid for 3 years, it concerns individuals - microentrepreneurs, the decree says.

A simple calculation shows that with the current minimum contribution for compulsory state social insurance (86.25 manats), an individual will be able to save 64.89 manats quarterly, which he will deduct from the 20% profit tax. 65 manats per quarter is an insignificant amount to repeat the statement of some experts that microentrepreneurs will not lose as a result of depriving them of a 75% tax benefit.

Experts in the field of economics working in the microenterprise sector are concerned about a significant drop in real and legitimate incomes since January 1 of this year.  Economist expert Samir Aliyev was supposed to receive 100 euros from a foreign customer for a one-time job. After calculating the tax on this amount, he decided to refuse to pay for work, since according to the new Tax Code, he would have to give 70 euros of the required hundred to the tax authorities.

"If 100 manats were credited to me for my work, I would have to add 15 manats to this amount and give everything to the state," Samir Aliyev ironically writes on the social network.

The government has raised the tax rate for the simplified regime to 20 percent, individual entrepreneurs are outraged, small firms are angry, everyone curses and swears," stated Fikret Mammadov, director of Sage Solutions company, in an interview with Turan.

"Experts believe that this is bad for small businesses, that they will go back into the shadows, that those who do not leave will close, and those who do not close will work for survival. It is also believed that all the burdens of this will be borne by the consumer, that the business will simply shift its tax burden to customers, as a result, price increases, inflation and "everything is gone," the expert noted.

He is concerned that the Ministry of Economy, in whose department the Tax Service  operates, decides without explaining the reasons, without holding broad discussions with business, without listening to the opinions of those concerned by the decisions of the Tax Service.

"It is possible to assess the risks and effectiveness of this adventure (and this is an adventure, until practice has proven otherwise) by two main parameters: the tax base and the level of tax collection. The tax base is the number of taxpayers. That is, the number of legal entities and individuals from whom taxes will be collected. The collection level is the total amount of funds collected in monetary terms.

Previously, the state collected 4 manats from 100 manats earned by a simplified entrepreneur. Now it will collect 20 manats each. This is good for the state, at first glance.

If out of 10 entrepreneurs paying 4 manats, 5 will "die out", and the remaining 5 will pay 20 manats, then the state will collect 100 manats instead of 40 manats. But there are questions here.   Are you sure that 5 out of 10 will die out, not 9?  To what extent will the remaining 5 entrepreneurs be able to provide new jobs and pay contributions to the funds? Or will they switch back to the gray payout system? Where to put the unemployed, as a result of the "death" of 5 entrepreneurs?  How will the additional costs of entrepreneurs be covered and will this be compensated by some kind of incentives, at least low bank interest on loans?",  asks the expert F.Mammadov.

Now, the Minister of Economy and his team have answers to these questions. But due to absence of communication in the chain "Ministry of Economy - Reforms- Economy (represented by companies, entrepreneurs, industries)", these issues remain unanswered and it seems that the economy is managed by the method of "scientific poke". It will be very funny if in six months they themselves abandon this decision," the expert summed up.

In his opinion, it is appropriate to add that the Ministry of Economy could not launch the long-announced, new way of logging into the National Assembly portal through Asan Imza using the "poke method".  Turan reported this in detail in the article "Tax Service fails to ensure sustainability of logging in through "Asan İmza."