14.Jun .2021 15:00

Which Tax Rate Reduction Will Have A Bigger Stimulus Effect On The Recovery Of The Economy?

Which Tax Rate Reduction Will Have A Bigger Stimulus Effect On The Recovery Of The Economy?
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The Investors Council Secretariat of Georgia, established by the EBRD and the Government of Georgia, published a study prepared by PwC that includes strategies for economic recovery.

According to the study, which tax reduction will have the most positive effect on economic growth, is the income tax.

As of today, all employees of Georgia pay 20% of their salary in the form of income. If this figure is reduced to 15%, the country's economic growth is expected to accelerate by 1.7%, while a reduction to 12% will increase it by 2.7%.

Which Tax Rate Reduction Will Have A Bigger Stimulus Effect On The Recovery Of The Economy:

•Reduction of income tax rate from 20% to 18% - will increase economy by 0.67%, but reduces total budget revenues by 0.65%;
•Reduction of income tax rate from 20% to 15% - will increase economy by 1.67%, but reduces total budget revenues by 1.63%;
•Reduction of income tax rate from 20% to 12% - will increase economy by 2.69%, but reduces total budget revenues by 2.60%;
VAT reduction has the following effect on economic growth:
•Reduce VAT rate from 18% to 16% - will increase economy by 0,31%, but reduces total budget revenues by 0.31%;
•Reduce VAT rate from 18% to 14% - will increase economy by 0.62%, but reduces total budget revenues by 0.62%;
•Reduce VAT rate from 18% to 12% - will increase economy by 1.25%, but reduces total budget revenues by 1.24%;
•Increase VAT threshold from 100 000 GEL to 200 000 GEL, will increase economy by 0.064%, bur reduces total budget revenues by 0.04%
•Increase VAT threshold from 100 000 GEL to 300 000, will increase economy by 0.012%, but reduces total budget revenues by 0.06%;
•Increase VAT threshold from 100 000 GEL to 500 000 GEL1, will increase economy by 0.023%, but reduces total budget expenditures by 0.12%.