The current system of revenue appeals in Georgia lacks transparency and creates uncertainty for taxpayers and investors. The development of revenue appeals policy forms part of overall modernization of tax administration.
Key Challenges
The shift to an independent system whether tribunal or tax court will represent a major step forward for the Government of Georgia and the impact will be profound. Gaining political acceptance of the need for change will be the single greatest challenge. The head of tax policy in the MoF is convinced of the need for change. However, government support for the reform is essential. While the overall need for reform is fully in line with government thinking, the ideal solution might provide an uncomfortable degree of transparency but there are ways of managing this issue. The topic of reform is politically sensitive and a clear strategy has yet to evolve.
While the Prime Minister has indicated a need for reform, policy consideration has not yet matured to the level of publicly stated options. One of the likely triggers for reform will be the political desire for accession to the EU. Addressing the lack of independence of the judicial systems will be a positive measure as this will most certainly come under scrutiny – even more so since some recent EU member states have failed to progress the independence of judiciary to the satisfaction of the EU policy makers. The key political decision is not which system appeals model but the desire for independence. Recently introduced arbitration has successfully reduced the number of appeals cases but the numbers are once again on the rise.
The change to an independent system will require legislation and the implementation of a tax court would also require constitutional change.
Key Recommendations
- The revenue appeals process should be made independent.
- As a first step, implement a tribunal system as this is realistic and achievable by say January 1, 2013. Implementation of a Tax Court – a possible follow on option – is likely to take much longer due to the need for constitutional change and more rigid rules of procedure.
- The RS should continue the process of reviewing all appeals but this should be constrained within existing management structures. Ideally, this should be a quality review that includes consideration of new information provided by the taxpayer.
- The appeals council should be abolished and replaced by an effective internal review process in the RS with only policy cases being referred to the MoF.
- All requests for reconsideration or review of a tax decision that do not involve tax policy or interpretation of legislation should be handled solely by the RS. Referring review or appeals cases to the MoF that do not involve policy creates double handling and is of limited value.
- A new organizational structure – located outside the MoF and RS – will need to be developed along with support staff and ICT solutions, particularly for case handling and publication of rulings.
- Develop procedures for making appointments, remuneration, position descriptions, recruitment, and training of tribunal panel members or tax judges. Training will be required at the earliest opportunity.
- Tax legislation should be amended to allow for „best judgment‟ assessments by tax auditors. The safeguard against abuse of such a provision will be the independent tribunal process.
- Taxpayer who appeals should be required to clearly state the grounds of appeal thus ensuring that nonappealable cases do not enter the appeals process.
The Way Forward
- The government will need to give early consideration of the options for reforming the tribunal system if an implementation date of January 1, 2013, is to be achieved. This is the earliest reasonable date for implementation of a new appeals model.
- Legislative amendments will need to be prepared and any possible conflict with the constitution identified and resolved.
- Tribunal panel members will need to be identified and trained as early as possible. The initial training may need to be performed abroad. Initially nine panel members and a tribunal chairman should be appointed. This key activity is likely to require project or donor assistance.
- Organizational structure, roles and responsibilities, ICT solutions, media, and communication will need to be established along with budget and financial framework.
- A project implementation plan is found in “Appendix D. Additional Information.” This plan is based on the assumption of a realistic January 1, 2013, implementation date. Given government pressure for reform the timeline may need to be shortened but whatever date is chosen the same tasks will need to be performed.
- Await the government adopted solution for follow-on action.