Study of Small and Medium Enterprises in Azerbaijan - IFC

7.4 Recommendations
7.4.1 Make the graduation from the simplified to the
standard tax regime less burdensome, by:
• Indexing VAT threshold for inflation;
• Consolidating into the simplified tax both turnover tax and SST; and
• Reducing the overall tax burden imposed under the standard tax regime 47 .
Expected impact
These measures may create a more favorable business environment for individual
entrepreneurs and SMEs, and contract the “shadow economy” by reducing tax evasion
and corruption, which will, in return, lead to an increase in tax revenues and number
of registered businesses.
7.4.2 Simplify the tax compliance, especially for individual
entrepreneurs and SMEs, by:
• Introducing simplified (different) accounting for individual entrepreneurs and
SMEs;
• Reducing the number of reports and payments individual entrepreneurs and
SMEs are required to make, especially reducing the number of reports with
respect to SST from 12 to two reports, or ideally to one report per year, and
providing for a quarterly VAT reporting option for SMEs; and
• Further streamlining tax accounting procedures.
Expected impact
As a result of these measures tax compliance will become less time consuming and
less expensive both for businesses and the government. Having a lower volume of
reports to check, tax authorities will redirect their resources to more value added
work. Clearer tax accounting procedures will reduce the number of mistakes by
entrepreneurs, hence the cost and time for rectifying them, at the same time increasing
certainty for entrepreneurs will allow them to assess their incomes more accurately.
Simplification of tax compliance and the tax system and further reduction of contacts
with tax officials will discourage unofficial payments.
7.4.3 Improve tax administration by:
• Simplifying tax payments by consolidating them with an option to pay more
frequently and reducing the number of taxes wherever possible;
• Introducing risk management principles in planning and conducting inspections,
focusing verification on the businesses where higher returns are expected;
47
These recommendations are the result of consultations with, and research by the World Bank. Reference is
made to World Bank 2008 Contestability of Domestic Markets.
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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