The value-added tax (VAT) exemption introduced in Georgia’s agricultural sector has ultimately proven counterproductive, according to Zurab Dznelashvili, founder of Tax & Legal Solutions. Speaking on the TV program Business Course, Dznelashvili argued that the measure, originally designed to boost local production, has instead favored imports and created complications for domestic farmers.
“The VAT exemption, which aimed to encourage agriculture, has had the opposite effect,” he said. “Farmers now struggle to cooperate with restaurants and retail chains, which prefer to purchase imported goods that include VAT and allow them to claim deductions.” He added that because local products are not significantly cheaper than imported ones, the inability to deduct VAT discourages buyers from purchasing Georgian agricultural goods.
Dznelashvili explained that under current rules, the supply of primary agricultural products is exempt from VAT, meaning local farmers sell goods without the right of VAT deduction. However, restaurants and supermarkets, which operate within the VAT system, find this arrangement inconvenient and thus favor imported, VAT-inclusive goods. As a result, local producers face reduced competitiveness and declining sales.
He called on the Revenue Service to reconsider its approach, emphasizing that tax relief should be a right, not an obligation. “If a farmer decides not to use the tax exemption, they should have the option to tax their products and allow buyers to deduct VAT,” Dznelashvili stated. “Such flexibility would make the system fiscally neutral and more supportive of local production.”
