Study of Small and Medium Enterprises in Azerbaijan - IFC

In Azerbaijan, tariffs on raw materials and semi-processed products (9 percent)
are higher than on fully processed products (8 percent). Compliant businesses are
required to pay VAT and other customs payments on imported goods as they pass
Azerbaijani customs territory no matter when the imported goods (raw materials
and semi-processed products) are intended to be used. Since (1) there is no effective
procedure to reclaim the duties paid and VAT rebate is very complicated, and (2)
no bonded warehouses are available for the temporary storage of imported goods,
the majority of businesses balk at using imported raw materials and semi-processed
products in their production, since the output is likely to be more expensive than the
imported fully processed goods of the same type. As a consequence, compliant businesses
have very strong disincentives to engage in foreign trade.
9.1 Foreign trade: the legal framework
Efficient import/export procedures are critical to facilitating trade and creating an
enabling environment for the economic development of the country. If customs policy
does not maintain equal treatment, significant economic damage and distortions can
occur in the domestic market, driving honest and compliant traders out of business.
Customs regulation must ensure that export/import tariffs are applied consistently
and uniformly to all traders to prevent economic distortions.
To achieve this, Azerbaijan has adopted more than 30 legal acts so far to regulate
foreign trade operations and payment of customs duties, tariffs and fees. The principal
legal acts establishing Azerbaijani foreign trade regime are enlisted in Annex 9.1.
The Customs Code, the main document in the regulation of customs issues, sets
forth the rules for customs clearance, levying customs duties, passage of goods and
vehicles through customs borders, customs control and customs policy, and designates
customs authorities, delineates the rights and obligations of customs authorities and
persons using customs borders, and regulates other fundamental issues related to
customs operations.
Under the Customs Code an importer may choose one of the 15 customs regimes
listed in Box 9.1, and may any time switch to another regime if the nature, quantity,
origin, and destination of goods allow. However, the Customs Code fails to provide
clear and comprehensible guidelines on the application of customs regimes (See Box
9.1).
The free trade regime is the most prevalently used customs regime. It is applied for
importation of goods on the basis of agreements. Under this regime an importer of
goods has no obligation to move the goods out of country in the future, and it is
required to pay all other taxes, duties, and other customs payments.
Bonded or customs warehouses are used for the temporary storage of imported goods
where, during the term of storage, no customs duties or taxes are paid. Although the
Customs Code provides for the establishment of bonded warehouses, according to
a verbal inquiry with the Customs Committee, no bonded warehouses have been
established so far.
142
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