Support to Approximation of Georgian VAT Rules with EU VAT Legislation

Project Description:

The objective of the project is to support the Ministry of Finance of Georgia (MoF) in gradual approximation of Georgian with EU legislation.

One of the priority areas of legal approximation under the Association Agreement is tax legislation, specifically value added tax (VAT). Policy and Management Consulting Group (PMCG) under the USAID / Governing for Growth in Georgia (G4G) project will develop recommendations in the VAT Approximation Action Plan for the Ministry of Finance of Georgia.

PMCG will collaborate with the MoF’s special working group and will conduct the following activities:

• Comparative analyses of VAT Directive with the tax code provision on VAT and identify any discrepancies;
• Prioritize the research results and the issues according to the criteria of feasibility and their impact on the private sector;
• Organize and conduct discussions with the MoF’s working group and private sector representatives about complex VAT issues;
• Support MoF to develop VAT Approximation Action Plan, ranking the tax code amendments according to priorities.

After clearly identifying the discrepancies in the comparative analysis, PMCG will explain the logic of provisions’ prioritization and their qualitative impact on private sector. As a result of the project, PMCG will provide a VAT Approximation Action Plan indicating the tax code amendments in order of priority.

Background Information:

Georgia and the European Union signed the Association Agreement (AA) on June 27, 2014. The Agreement offers Georgia a route to economic integration into the EU internal market, notably through establishing a Deep and Comprehensive Free Trade Area and constitutes a comprehensive ‘reform agenda’ for gradual approximation of Georgian legislation with that of the EU. One of the priority areas of legal approximation under the AA is the tax legislation and, in particular, the value added tax (VAT) related rules. The key EU legislation on VAT includes “Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax” (VAT Directive).

The Ministry of Finance (MoF) approached G4G with a request to provide technical assistance in analyzing the VAT Directive, prioritizing its provisions according to agreed criteria and developing recommendations on an approximation action plan. To support the process, MoF established the working group (WG) consisting of representatives from MoF’s Tax Policy Department, Revenue Service (RS) and the EU Twinning Project “Strengthening Administrative Capacity of the Georgian Revenue Service in Taxation” (EU Twinning Project). PMCG, as an implementing partner of G4G, will provide analytical support to the working group. It will prepare and bring issues to be discussed by WG members, collect feedback and lay down recommendations for legislative approximation. PMCG will also ensure the private sector’s participation in the VAT legislation review and conduct public-private consultations throughout the review process.

Follow the links below for more detailed information:

Simplification of Tax Code
USAID Georgia, Economic Prosperity Initiative – Assessment of Georgia-United Arab Emirates Double Taxation Treaty
Business Environment Improvement (BEI) Project in Kyrgyzstan
Governing for Growth in Georgia (G4G), by USAID