The recent amendment to Georgia’s tax code, known as the “offshores law,” has sparked significant concern regarding the integrity of Georgia’s financial system. This policy brief examines the implications of this amendment in the context of Georgia’s recent political and regulatory developments, which have raised alarms about the potential risks of money laundering and sanctions evasion.

The profit tax system that came into force on January 1, 2017, in Georgia aims to create a favorable business environment, accelerate economic growth, and improve tax administration. This system is based on the distributed profit taxation regime, similar to the one implemented in Estonia.

More than three decades ago economists famously concluded that tax compliance is rather irrational behavior. Literature, across a wide range of disciplines, has since been overflowing with analysis as to why we see so much tax compliance in the modern world. The academic literature is concerned with why people pay so much tax or why so many people pay taxes, therefore policy-makers can gain an understanding of the underlying mechanisms, which thus allows them to design appropriate policy actions to boost revenue efforts.

On November 19, ISET was visited by Mr. Alan Fuchs of the World Bank Group, whose presentation, 'Taxing Tobacco in Georgia: The welfare and distributional gains of quitting smoking’, delved into the welfare and distributional impact of increasing taxes on tobacco in Georgia.

In 2016 reform to levy profit tax was carried out in Georgia to accelerate economic growth in the country, create a favorable environment for starting business and production, and tax administration. The reform envisaged transferring into the Estonian model of levying profit tax, resulting in levying enterprises with taxes during profit distribution.