Study of Small and Medium Enterprises in Azerbaijan - IFC

View from an entrepreneur:
“Instead of spending time and money tinkering with the intricacies of CPT reporting ,
I would rather pay a ’service fee’ to a tax official, whom I have been known for a long
while, to prepare my reports. In the long run, it is less costly and time consuming.”
7.3.1.1 The frequency of VAT reports and time schedule for filing
reports with respect to certain taxes is not efficient
Currently, VAT payers are required to file quarterly SST reports, and monthly VAT
returns together with annexes, such as tax invoices, and make monthly SST payments.
Yet best practice shows that by cutting the annual reporting requirements, both the
government budget and the businesses may benefit in terms of cost savings.
The time schedule for filing reports with respect to different taxes is not time and
cost-effective either. For instance, tax reports for land tax must be submitted by May
15, whereas the same deadlines for corporate property tax, CPT, and road tax reports
are by March 31. Establishing the same deadline for the filing of all annual tax reports
may decrease the administrative expenses and correspondingly the number of visits
with the tax authorities.
7.3.1.2 The calculation of taxes is complicated, especially for SMEs
that can not afford hiring consulting services
Recent years, tax compliance has become easier due to the tax consultation services
offered to tax payers. However, the difficulty in calculating taxes, especially calculation
of CPT and PIT, coupled with the obscurities in tax legislation and the lack
of uniform interpretation of laws is another hurdle for businesses. Any additional
simplification would lead to less outsourcing of bookeeping that currently adds to
cost of doing business.
The fiscal year with respect to CPT is the calendar year. However, taxpayers must pay 25
percent of the tax paid in the previous year in advance, within 15 days of the end of each
calendar quarter. As an alternative, the taxpayer may opt to apply to the current quarter’s
gross income the ratio of tax to gross income in the previous year. An advance payment
for a taxpayer without activity in the previous year is calculated on a cumulative quarterly
basis in accordance with the tax rates effective in the current year. Advance tax payments
must not be less than 75 percent of the profits tax due. The tax authorities must be
notified of the payment within 15 days of the end of the relevant quarter.
To file tax returns, taxpayers must pay any balance of taxes before the due date (for
legal entities and permanent establishments, March 31 of the year following the
relevant fiscal year). Upon request, CPT returns may be deferred by up to three
months if taxes due have been paid.
Any amounts overpaid may be netted against other taxes due. Despite the fact that
under the Tax Code, the taxes overpaid may also be refunded, according to entrepreneurs,
this is a difficult, if not an impossible, procedure in practice.
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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