Georgia’s Tax System: Between Reform and Stability

Abstract

The tax system is one of the primary instruments of economic stability and fiscal sustainability in modern states. Georgia’s Tax Code defines the types of taxes, taxpayer categories, and the rules of taxation, enabling the state to maintain a balanced budget and create a business-friendly environment. Taxes serve not only fiscal purposes but also strategic economic, social, and regulatory functions, promoting economic policy implementation, social equity, and the country’s investment attractiveness.

The Georgian tax system is divided into two main categories: state taxes and local taxes. State taxes, which constitute the central budget, include personal income tax, corporate profit tax, value-added tax (VAT), excise duties, and import duties. Local taxes, administered by municipal authorities, primarily consist of property tax and other local levies, ensuring financial independence for municipalities and enabling the funding of infrastructure, education, and social projects.

Personal income tax in Georgia is progressive: annual income up to 40,000 GEL is exempt, while income above this threshold is taxed at a 20% rate, ensuring social fairness and international competitiveness. The corporate profit tax adopts an innovative model, taxing only distributed profits at 15%, while reinvested profits remain untaxed, stimulating investment attraction and business development. VAT, as an indirect tax, represents a major source of budget revenue, with a standard rate of 18% and a reduced rate of 5% for hotel services, supporting tourism promotion. Excise duties, applied to specific harmful products, both increase budget revenues and support public health policies.

Among local taxes, property tax plays the primary role, though it creates revenue disparities between regions. The Georgian Revenue Service is responsible for tax administration, and the introduction of electronic declaration has simplified bureaucracy and increased transparency.

Compared internationally, Georgia’s tax system is competitive due to its low rates, simple administration, and predictable environment. However, challenges remain in maintaining fiscal stability, reducing regional disparities, and ensuring fair revenue distribution. Recommendations include improving administrative processes, maintaining business incentives, refining the progressive scale of personal income tax, strengthening local finances, and increasing taxpayer awareness.

Overall, Georgia’s tax system represents a stable, competitive, and innovative fiscal mechanism, and its further refinement will significantly support economic growth and the promotion of social equity.