Consumers to win, shadow economy to disappear
Azerbaijan has launched a new mechanism for refunding a certain part of the value-added tax (VAT).
"Besides the setting of the mechanism, in agreement with the relevant government agencies, the service identified an authorized bank that will be involved in the process - Kapital Bank. Also, work on the preparation of a special website where consumers can request refunding part of the VAT paid for bought goods, has been completed," said Elchin Mammadov, Head of Taxpayer Service Department in the Ministry of Taxes.
"According to the rules, when refunding a certain part of VAT, certain factors are taken into account. The consumer must be an individual, and the seller or service party must be VAT payers, using new generation cash registers. The refund of the part of VAT is possible only at facilities, which use the new cash registers,” he noted.
"To return part of the VAT, citizens must register on the mentioned website, after which they will be able to use an electronic account,” Mammadov emphasized.
"The consumer can pay for the goods by cash or non-cash. In the first case, the seller must present to the consumer an online check of the cash register. When paying by bank transfer without integration with the POS-terminal cash register, the consumer must also provide an extract from the POS-terminal,” he added.
"Within 90 days from the time of receipt of the check, the 12-digit identifier of the receipt should be entered by the user on the website. The users of the Kapital Bank’s 'BirBank' application can easily return VAT by just scanning through this application the QR code located at the end of the check. The phone number registered in the BirBank app must be the same as registered on the website. In this case, a request for the refund of the VAT will be automatically reflected in the electronic account,” Mammadov said.
"Immediately after this, information about the check is checked for compliance in the database of the State Tax Service. After 30 days from the time of receipt of the check, 15 percent of the amount of VAT on non-cash payments, and 10 percent on cash payments are put in a virtual wallet, which is available in the online user cabinet of the website. That money can be used to pay for utilities, mobile, internet, TV, insurance payments, or be transferred to bank cards," said Mammadov.
According to economist Rashad Hasanov, it would be better if the percentage of refunded VAT was set a little higher. It is evident that during the pandemic, the incomes of many families have decreased. This mechanism creates certain conditions for more efficient use of personal funds, more optimal management of household budgets. VAT refunds can be considered an additional source of income for citizens. Additionally, the mechanism is aimed at reducing the turnover of the shadow economy. If the turnover of the shadow economy decreases, the state's fiscal revenues will increase, which allows social programs implemented through the state budget to be broader, more effective, and comprehensive. However, some nuances are missing in this program. For example, incentives for citizens to use this mechanism are weak. It is better to set the interest rates on the refunded VAT a little higher. In this case, high-interest rates can ensure more active participation of consumers in the process. One of the other disadvantages of the mechanism is that it directs the consumer to some extent. In other words, citizens will no longer prefer to shop in small retail outlets, but in supermarkets, which will weaken micro-entrepreneurship.
Economist Turab Rzayev noted that this mechanism will attract citizens to supermarkets. "Every step taken has both advantages and disadvantages. If we talk about the disadvantages of this mechanism, we must first note the damage it will cause to small and medium businesses. It is a well-known fact that many retail stores do not issue receipts, which will lead to their customers shopping at supermarkets. Thus, the income of small businesses will fall. The rules state that refunds will be made only through receipts issued from new generation cash registers, which raises the question of whether all sales outlets in the country are equipped with these cash registers? Also, the numbers on most receipts issued in supermarkets are hard to read, and many appear to be erased, which may create certain difficulties for citizens in using the fiscal code. The positive side of the mechanism is to prevent unregistered sales and the shadow economy. This process has been used for a long time in many countries around the world,” he said.