Georgia’s democratization process is taking an ironic turn. Though eager to distance themselves from the Soviet era, a time when informants buttressed the Communist system, officials in Tbilisi are now turning average Georgians into tax-fraud snitches.
The government wants to maximize its tax revenue collection and wants the public to help it identify stores, both big and small, which hide profits and avoid paying their fair share into the state’s coffers. Under a program instituted by Georgia’s Revenue Service, an unspecified number of shoppers are being recruited and paid 100 lari (about $60.16) for each shop they report that is fined for not providing receipts to customers. The so-called “private tax inspectors” receive training from the government on how to monitor stores in their neighborhoods.
Kakha Baindurashvili, who stepped down as Georgia’s finance minister this June and helped establish the initiative during his two-year tenure as minister, describes the program as an effort to “create” the habit of paying taxes – and keeping sales records – without using aggressive tools like the financial police, or an audit.
“Daily discipline on trade means less crackdowns or audit-type of activities [from] the Revenue Service,” Baindurashvili said. “This definitely benefits the private sector because they have this daily monitoring [that] really kind of diminishes the heavier interventions we needed before.”
He dismissed concerns that the monitoring hearkens back to the Soviet use of informants. If anything, he said, the motivation will be “to protect your neighbor, your friend, because the protection of social networks is very strong in Georgia.”
Worries about the program and its potential for perpetuating fear and distrust nonetheless exist.
Kakha Kokhreidze, vice president of the Georgian Small and Medium-Size Enterprises Association, reports that complaints about the program from shop owners are already trickling in from around the country. Under Georgian law, all shops are required to keep “primary tax documentation,” such as sales records, although only shops with annual revenues over 30,000 lari (about $18,048) are required to use cash registers.
Tax ombudsman Giorgi Pertaia also worries that the payment of 100 lari – a sizeable sum for many Georgians, particularly pensioners – to shopper-inspectors creates “a conflict of interest” by encouraging participants to inform on stores. Pertaia, who otherwise supports the program, noted that his office has been in regular contact with the Revenue Service about ways to compensate inspectors without linking it to the 500 lari (about $300.81) fine.
Neighborhood inspectors appear to target small shops where there is a bigger chance for a violation, Kokhreidze said. The 500-lari fine for not issuing a receipt – about the same size as the average monthly salary of 556.8 laris, or $334.98 – can be a severe financial blow to small shops.
“[I]f you have the obligation to use a cash [register], you have to use it. … [But] what I see sometimes is that the tax revenue service representatives also penalize sometimes very small entrepreneurs, sometimes for a very stupid case.” He did not elaborate.
Businesses in rural areas, Kokhreidze added, are especially vulnerable to running afoul of the Revenue Service since many have less access to information about regulatory changes than do shopkeepers in Tbilisi.
Despite repeated requests from EurasiaNet.org, representatives of the Revenue Service were not available to discuss how the program operates.
Baindurashvili shrugged off concerns that the inspectors are too focused on reporting fines, or that the program is undercutting public trust. “[I]t is just about printing receipts,” he said. “[W]e try to create some kind of impulses for this culture [of paying taxes] to be developed in Georgia.”
That culture appears on an increasingly firm footing. Fear of tax inspections has even reached the Caucasus’ largest bazaar, Lilo Mall, just outside Tbilisi. A woman selling curtains at the bazaar was adamant about giving a receipt to a customer who said he did not want one.
"I am so scared of them [tax inspectors],” she said. “There is always someone watching us from afar.”
The Economic Policy Research Center, a think-tank that receives support from the Open Society Georgia Foundation (OSGF), reported this month that in the first quarter of 2011, tax payments made up 88.6 percent of Georgia’s budgetary revenues of 1.76 billion lari (about $1.06 billion), a sizeable difference from the past. [Editor’s Note: EurasiaNet and OSGF both operate under the auspices of the Open Society Foundations].
Making sure that revenue is gathered efficiently “depends” on stores using cash registers to document sales, stressed tax ombudsman Pertaia. “If the machine is used wrong or not used, the business can declare the wrong income,” he said. “[T]he law should be applied for everyone the same way. The honest business should not pay more than the dishonest business.”
Tbilisi shop managers and cashiers interviewed by EurasiaNet.org seemed guarded when discussing neighborhood inspectors, although everyone knew about the program.
Khatuna Kobakhidze, manager of the Mals clothing store in the booming Saburtalo District, said she is not concerned if shoppers are doubling as tax inspectors. “They have been here many times before,” Kobakhidze said, in reference to tax inspectors. “We do not fear them because we follow the law. … [This type of program] is necessary so everything is put in order.”
Others were not so sure. Ia Jgenti, a cashier at Art Tex, another clothing store in the same neighborhood, objected angrily that having ordinary shoppers act as tax inspectors, calling it “not normal.”
“If someone wants to cheat, they can always find a way,” Jgenti said. “This practice is not respectable.”
Molly Corso is a freelance reporter in Tbilisi and editor of the American Chamber of Commerce’s Investor.ge magazine.
Sign up for Eurasianet's free weekly newsletter. Support Eurasianet: Help keep our journalism open to all, and influenced by none.