Peculiarities of the “Estonian” Tax Model in Taxation System of Georgia

Besik Bolkvadze

doi:10.26417/ejis.v4i2.p156-161

Abstract

Georgia is a country of a transitional economy, one of the most important financial determinants of which is the tax system, which is constantly undergoing the changes to different directions in terms of perfection and development. Taxes somehow create a peculiar "bridge" between the macrofinance and microfinance, among which the corporate income tax gains the function of the crucial important tax in terms of efficient operation of the business sector. Among the reforms carried out in the economy of Georgia, one of the most topical directions among the economic reforms is establishment of the so-called “Estonian” model and its further implementation. The present paper deals with the relative aspects of traditional and Estonian models of taxation and substantiates the necessity of determination of the main directions of its perfection.

Highlights

One of the most innovative reforms implemented in transitional economy of Georgia, namely in its tax system is the implementation and operation of the so-called “Estonian” model since 2017, aimed to promote the economic growth on the basis of increasing business reinvestment in terms of proper tax administration
It is important to emphasize that the classical and imputation systems of corporate income taxation are used in the worldwide taxation systems
The distributed dividends are subject to taxation in parallel to corporate income taxation, while in the imputation system, the corporate income taxation excludes the moment of taxation of the profit distributed as dividends

Summary

Introduction

One of the most innovative reforms implemented in transitional economy of Georgia, namely in its tax system is the implementation and operation of the so-called “Estonian” model (hereinafter: The Estonian model) since 2017, aimed to promote the economic growth on the basis of increasing business reinvestment in terms of proper tax administration. Due to the fact that the corporate income (profit) tax is the basic tax for any business entities, it is important to emphasize the main features that distinguish the Estonian model from the traditional one. In Georgian reality, the Estonian model can be considered as a peculiar modification of the half-imputation system of taxation in which the profit distributed as dividends are taxable if it is aimed to reinvestment of the business subject as well as in other specific cases. For the economy of Georgia, which seeks to attract foreign investments, it is especially important to carry out the qualitative and quantitative analysis of the Estonian model, where the above mentioned model was introduced in 2000, and the results of its effect on investment activity and, overall, on economic growth was observed from the medium-term (approximately after 2-3 years).

Comparative analysis of traditional and Estonian tax models

The main characteristics of the Estonian tax model

Findings

Conclusion