Economic expert: Tax revenues reduction in Azerbaijan should be compensated

By Trend

To mitigate the risks arising from the preferential package of tax reforms, it is extremely important to increase investments and monitor the correct targeted use of the growing money supply, Economic Expert, Professor of Azerbaijan’s State University of Economics (UNEC) Elshad Mammadov told Trend.

The expert also said that the changes associated with a sharp decrease of 75 percent in income tax is a very correct step, because it can allow compensating for the falling public investments by private investments into the national economy.

“Thus, exempted funds should be directed to companies in order to maintain the level of investments in the domestic economy. In other words,regarding the lowering of the income tax, it is necessary to achieve a concomitant increase in investments, that is, those sectors of the economy and business that will invest more, pay more to depreciation funds, should receive a greater tax incentive,” said Mammadov.

“At the same time, I think that the growth of the money supply should be accompanied by the growth of investments, so that on one hand the purchasing power of the population increases and the social benefits of the population increase, and on the other hand there will be an increase in investments to increase the production of goods and services in the real sector of the economy,” he added.

“Amid the introduction of a package on relieving tax burden for taxpayers in the areas most affected by the COVID-19 pandemic, as well as the suspended activity of the economy and record low oil prices, budget cuts should relate to administrative expenses, government administration expenses, and possibly to a small extent, capital investment. At the same time, the reduction in investment should be insignificant, and should be compensated by private investments,” said the economic expert.

“From the point of view of covering the budget deficit, in my opinion, the best option is the currency emission and buyout of the government securities. The buyout of securities by the CBA and the injection of money into the economy are the most optimal options, since external borrowing cannot be considered optimal, especially in the current conditions. As for withdrawing money from the economy, this will mean a reduction in domestic investment, which is also extremely impractical,” Mammadov said.

“The risks of a reduction in capital investments will occur if they are not compensated by private investments. Therefore, the state needs to create appropriate conditions so that private investments, which should be based primarily on the institution of internal soft lending, compensate for the state capital investments, which will fall out as state budget expenditures decrease,” the professor concluded.