Study of Small and Medium Enterprises in Azerbaijan - IFC

year. Such a drastic increase in tax burden is obviously a drive for a business to hide
or “adjust” its turnover in order to avoid the shift to the standard tax regime. Similarly,
individual entrepreneurs moving to the standard tax regime are obliged to pay 14 and
35 percent PIT.
7.3 Standard tax regime
Taxpayers with a turnover for the last three months exceeding the VAT threshold of
22,500 Azerbaijani manats, as well as taxpayers that may not take advantage of the
simplified tax regime as enlisted in Sub-Section 218.2 of the Tax Code, such as businesses
producing excisable goods and non-governmental pension funds, are required
to file an application to register for VAT upon the expiration of the three-month
period. Except for businesses engaged in the construction of residential premises that
are simplified tax payers, all other VAT registrants operate in the standard tax regime
and are the payers of taxes enlisted above (7.1, 3 rd paragraph).
The main tax obligations for SMEs and individual entrepreneurs under the standard
tax regime are tabulated on the next page.
7.3.1 Administrative hassle of compliance with Azerbaijani
tax requirements is very time consuming and costly
It is crucial that a tax system complies with the general level of economic development
of a country and is consistent with the institutional capacity of taxpayers. In fact,
a system with unreasonable requirements for SMEs, high tax rates, and relatively
complex taxation accounting and inspections hinders the development of businesses
and forces entrepreneurs to search for alternative solutions, such as tax evasion.
Therefore, instead of promoting tax compliance, the relatively complicated tax system
partly or completely pushes entrepreneurs into the “shadow economy.”
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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