Study of Small and Medium Enterprises in Azerbaijan - IFC

7. Business Taxation
The Tax Code of the Republic of Azerbaijan, the first attempt at the codification
of Azerbaijani tax legislation, came into effect on January 1, 2001 and resulted
in substantial improvement of the Azerbaijani taxation system. In an attempt to
improve the taxation system further, the Tax Code has been amended 19 times since its
adoption. Notwithstanding these amendments, a closer study of the tax system coupled
with the survey results reveals that the Azerbaijani tax system, including tax legislation
and tax administration, is still inefficient and impedes the development of Azerbaijan’s
private sector.
In the Investment Climate Report, based on a survey conducted by the World Bank
among 350 Azerbaijani firms in 2005, the taxation regime (tax administration and
tax rates) and corruption were indicated as three major problems for Azerbaijani
businesses, with a quarter of the firms regarding the taxation regime as the main
constraint to doing business (see Table 7.1).
Table 7.1 Top six constraints to doing business in Azerbaijan in 2005
(as percentage of surveyed firms)
No. Area Percentage
1 Tax administration 25
2 Tax rates 23
3 Corruption 21
4 Access to financing 8
5 Customs and trade regulations 8
6 Permits and Licenses 8
Source: the WB Investment Climate Report for Azerbaijan 2005.
Two recent surveys conducted by the World Bank and IFC reveal that not much has
changed since 2005. According to the 2009 Doing Business report Azerbaijan ranks 102
among 178 economies in the ease of paying taxes (Table 7.2). The survey conducted by
IFC in late 2007 revealed that tax administration is still a burden and is ranked fifth out
of the six most difficult regulatory issues in Azerbaijan.
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St u d y o f Sma l l a n d Me d i u m Ent e r p r i s es in Az e r b a i j a n