How will Azerbaijan fundamentally change its tax policy to diversify economy, increase growth? [ANALYSIS]

In a bid to reduce its dependency on the oil and gas sector and foster economic diversification, Azerbaijan is set to undertake a comprehensive review of its tax policy, according to a recent report by Fitch Solutions.

The international credit ratings agency forecasts a significant rise in GDP per capita for Azerbaijan, predicting an increase from USD 8,612.0 in 2023 to USD 16,999.0 by 2033, citing potential upside risks stemming from currency stability. This positive outlook underscores the nation's commitment to steering its economy towards sustainable growth.

"We expect nominal rising incomes and consumption to provide some support for the diversification of the economy away from the oil and gas sector. These factors will be particularly important for the sustainability of the economy over the long term, as an overreliance on energy exacerbates the risks of Dutch disease. The government is aware of the need for economic diversification and plans to introduce several measures to mitigate this risk," Fitch Solutions noted.

Key among these measures is a fundamental restructuring of the non-oil tax policy, including the introduction of a flat tax system and a reduction in the value-added tax (VAT). These changes aim to create a more conducive environment for the growth of medium-sized companies, thereby promoting a more diversified economic landscape.

"In addition, the government currently has several ambitious plans to improve infrastructure, particularly in energy and transport. These factors will aid the development of a competitive non-energy sector, which will support economic growth," the agency added.

The emphasis on infrastructure development aligns with Azerbaijan's broader strategy of modernizing its economy and enhancing its competitiveness on the global stage. By investing in key sectors such as energy and transport, the government seeks to lay the groundwork for a thriving non-energy sector, capable of driving sustainable economic growth in the years to come.

The proposed overhaul of the tax policy reflects a proactive approach by Azerbaijani authorities to address structural vulnerabilities and capitalize on emerging opportunities. By diversifying revenue sources and fostering an environment conducive to business growth, Azerbaijan aims to build a more resilient and dynamic economy, capable of withstanding external shocks and ensuring long-term prosperity for its citizens.

As the nation embarks on this ambitious journey of economic transformation, effective implementation of these reforms will be paramount. Close collaboration between the government, private sector, and international partners will be essential to navigate potential challenges and unlock the full potential of Azerbaijan's economy.

In conclusion, Azerbaijan's decision to review its tax policy comprehensively underscores its commitment to economic diversification and sustainable growth. With careful planning and execution, these reforms have the potential to reshape the country's economic landscape, laying the foundation for a more prosperous and resilient future.