Document Type: Monitoring and Evaluation

Georgia has made significant effort in improving tax administration. Over the last several years, USAID provided considerable assistance to the MoF in designing and implementing reforms aiming to improve overall tax compliance. The initiatives included e-filing of tax returns, initial steps to implement risk-based audits, automation of tax lien filing, non-filers, non-payers business process, etc. The tax legal and regulatory framework was significantly streamlined and clarified, thus decreasing compliance burden for taxpayers and administration alike and increasing voluntary compliance. Return forms were significantly simplified for all taxes, reducing the number of pages, and eliminating redundant information requirements.

A new Revenue Code became effective from January 1, 2011. This code introduced, among other things, a different taxation regime for SMEs, the right for Revenue Service (RS) to issue binding advisory opinions and tax rulings, and combined the tax and customs provisions into one code. Despite all these new developments, the tax administration is still following, to a large extent, an enforcement compliance approach versus voluntary compliance. A key change that needs to occur is for the RS to stop relying on penalty assessments as a major source for raising revenue. Areas of particular concern include: a) enforced collection procedures and practices; b) non-filer/non-payer control procedures; c) tax declaration processing procedures; and d) tax lien filing procedures.

The challenge is to identify areas for improvement and develop recommendations to enhance the tax administration system and bring it into compliance with international best practices encompassing a voluntary compliance approach. This report addresses the abovementioned concerns.

The supplement to the Apparel Value Chain Assessment was conducted in February and March 2011. The purpose of the supplement was to build on the existing Apparel Value Chain Assessment by providing information on, and a comparison with, Turkey’s apparel industry.

Georgia is blessed with a strategic location, beautiful physical features and historical treasures, as well as talented, energetic people. In recent years, a democratically elected, forward-looking government has created an empowering, laissez-faire business environment to complement these natural endowments as well as an atmosphere in which business can flourish. Recognizing that this combination of assets and opportunity is rare in the world, the U.S. Government wishes to strengthen, deepen, and institutionalize these developments to ensure continued peace, stability, and democratic political and economic growth. The Economic Prosperity Initiative (EPI) project has conducted sector assessments for agriculture and non-agriculture sectors in Georgia. Through these assessments, the EPI team has identified priority sectors for project intervention and several potential value chains for focus within these sectors.

Attracting investments, foreign and domestic, is one of Georgia‘s key priorities to promote sustainable economic development. During recent years, significant donor assistance has been provided to the Georgian National Investment Agency (GNIA) to build capacity to promote foreign investment. However, GNIA still lacks mandate, capacity, and resources critical for strategic vision based targeting, investment generation, investment facilitation, comprehensive investor after-care, and continuity. The objective of this study is to provide a comprehensive set of recommendations, based on international best practices, for improving the GoG‘s effectiveness in investment promotion based on a thorough assessment of the approaches and capacity of relevant agencies active in this vital functional area and to define EPI work plan interventions to support this effort.

Georgia is making a progress in reforms and developments. This posture contributed to the posting in the most recent report from World Bank Doing Business for 2011, ranking Georgia 12 out of 183 global economies in ease of doing business, and ranked 7 in dealing with construction permits.

The U.S. government has been in full support of these reforms and developments for a stronger Georgia, politically and economically. This support substantiated by various USAID projects to reinforce, strengthen, and institutionalize the progress for sustainable growth and development in Georgia.

The USAID Economic Prosperity Initiative project has conducted assessment on many business sectors in Georgia, including the construction sector, which is the subject matter in this report. Government of Georgia has already made significant progress in simplifying and streamlining administrative procedures for issuing construction permit and CO and adopted administrative part of construction legislation that meets international standards and best practices. However, Georgia still lacks construction technical standards. Therefore, EPI project initiated new scope of work, Assessment of Building Codes, Standards, and Regulations in Georgia, to address this very important issue. The focus of this report is to evaluate current Georgian building codes and standards and compare it to recognized international codes, make recommendations based on findings to bring Georgian construction industry to international level. The intent of this reform is to attract investors, discover local construction materials, boost market development, and build skills in planning, design, construction, and operation, which will contribute to job creation and prosperity.

The purpose of the assignment was to assess and recommend future USAID-Economic Prosperity Initiative (EPI) project interventions in the horticulture sector that will result in increased domestic and export volume/value of a diversity of vegetable and fruit crops and agro-processed products. The project’s objective is to significantly increase investments in the horticulture sector during the next three years which will make it more domestically and globally competitive.

All of the horticultural crop value chains within the country were reassessed in order to determine which ones could provide the greatest return on USAID’s investment, considering the timespan required to implement the training and technical assistance interventions of the project and their potential economic impact on product farm-gate value, import substitution, and export volume/value.

Attracting investment is one of Georgia’s key priorities to promote sustainable economic development. Despite carrying out reforms to reduce burdens on business, as reflected in Georgia’s extraordinarily high ranking in the World Bank’s Doing Business Index for 2011, its scoring in the World Economic Forum’s (WEF) Global Competitiveness Index reflects an environment of pessimism and uncertainty among investors as they express concern about a variety of topics, such as protection of property rights, investor rights, accounting and audit standards, and corporate governance. The elimination of remaining policy barriers to implement a world-class investment environment in Georgia—one that ensures a level playing field and improves investor protections—would enhance Georgia’s competitive positioning to attract value-added investment and promote sustainable job creation. Investor confidence would be enhanced by strengthening dispute resolution and enforcement mechanisms related to investor rights, including tax-related concerns. There is also need to enhance legislation that sets corporate governance, and accounting and auditing standards to strengthen business practices in Georgia, improve the ability of companies to access finance, and attract foreign partners.

Realization of the business acumen of managers of the newly created farm service center (FSC) and machinery service center (MSC) network and gaps in the supply and demand of agricultural inputs are of critical importance to the USAID-funded Economic Prosperity Initiative (EPI). Strengthening managerial skills and identification of interventions to close those gaps are within the scope of the program. The purpose of this report is to assess those factors and identify steps to rectify any shortcomings.

The Government of Georgia has recently approved a new Revenue Code, which went into effect January 1, 2011. The new Code introduced a new tax regime, allowing the State Revenue Service (SRS) many new authorities. In addition, the SRS and the Audit department have undergone a change in leadership as of January 2011, and are seeking to utilize this new vision and authority to conduct more effective audits. Although not utilized, many tools have recently been introduced into the Audit Department, such as risk based audit selection systems, Field Audit, and Large Taxpayer Inspectorate. As approximately half the population of Georgia is located in Tbilisi, the Tax Department is based mostly in Tbilisi, with regional Service Centers scattered around the country.

In an effort to address inadequate audit activities, the Tax Department has withdrawn field audit activities, conducting all audits as desk audits from Headquarters. The Tax Department has also eliminated the Large Taxpayer Unit, distributing the auditors among the many desk audit units at Headquarters. No audits are conducted from the regional Service Centers. Tax returns selected for audit activity are personally identified by the First Deputy Head of Tax Department, as he is unsure of the effectiveness of the Audit Selection System installed at the Revenue Service. All cases appealed from the Audit Department are personally reviewed by the First Deputy Head of Tax Department before being sent to the Appeals Department.

It is the desire of the Tax Department to begin anew with appropriate processes and procedures, organizational separation, and proper IT support. To this end a Risk Based Audit Capacity Needs Assessment was performed. Laws, background information, and reports of other advisory bodies were utilized. Interviews of Heads of Departments in key positions and business leaders were conducted to determine their vision of an effective, fair, and efficient Audit Department for Georgia. This report covers the entire Audit Department, and includes relations with and dependency upon Revenue Service Departments (such as IT or Human Relations).

This Vegetable Market Assessment was prepared under the United States Agency for International Development (USAID) Economic Prosperity initiative (EPI) within the Agricultural Sector Component. The purpose of this market assessment is to assess the vegetable market for export potential, linkages, gaps, positive leveraging points, and areas of improvement, in order to depict a larger picture of how the vegetable sector can achieve a higher level of competitiveness.