Monday, 5 November 2012

Tax Evasion: Examples from Georgia

In an interesting article in Der Spiegel, it is stated that the new tax burdens promoted by the Greek government and the Troika result in extracting much more wealth from the middle or lower income families than from the richer ones. True story if you consider what most lawyers, economists, politicians and doctors do in the South. Tax evasion (not to be confused with tax exemption which is the legal ability to take some tax breaks) has been an issue in the South for almost a century now and yet nothing has been done to effectively counter it.

The problem with the South is that, when it comes to getting instructions or following rules, it always looks to the North. Had they had just tilted their head to the left they would have found the excellent example of Georgia and its current president Mikheil Saakashvili. (thanks to Rottin in Demnmark for his article). It looks that what Saakashvili did was actually amazing:

Michael Saakashvili. Source: Wikimedia Commons
He had the official vendors of the country (in contrast to the unofficial vendors e.g. fruit sellers in the market) install special cash registers which told the government, in real time, what they were selling and what they were earning. What was truly amazing though is that Saakashvili worked on incentives as well: the special cash registers' receipts had built-in lottery tickets. Each of these special receipts contained a bar-code which, after bought automatically entered what I would assume a lottery of some kind, and for the winners could be redeemed for cash.

How successful could this mild moderation be you may ask? Well, the Doing Business 2012 report ranks Georgia 16th in terms of Ease of Doing Business index (up from 112 in 2006), naming Georgia as the top reformer amongst the 174 countries over the last 5 years. Georgia's fiscal deficit has been turned into a surplus and its tax rates are one of the lowest in the world.

The fact is that other countries do not have to copy-paste Georgia's policy to the letter. It is not the greatest policy in the world as it is very restrictive. Nevertheless, it is there to show that we do not have to count on others to promote reforms and innovative legislative changes. All it takes is some good will and some good thinking. Ideas are not that hard to find and are sometimes just as easy to implement correctly. People are eagerly looking for a government they can trust. Why not give them one?

Saakashvili stated that Georgia is "on the road to becoming a European democracy." I think that European democracies have a lot to learn from Georgia as well.

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