Georgia’s tax system faces three main challenges that are directly linked to the broader economy, according to Zurab Dznelashvili, founder of Tax & Legal Solutions. Speaking on TV-program Analytics, Dznelashvili highlighted systemic issues within tax administration that contribute to the persistence of the shadow economy.
According to him, while the “unobserved” and “shadow” economies are broad concepts primarily studied by economists and statisticians, their tax administration aspects reveal significant weaknesses.
“In terms of tax administration, we have three challenges connected to the growth of unobserved economy indicators,” Dznelashvili explained.
“First, there are unregistered businesses that operate entirely outside the system of control and accounting.
Second, there are undeclared taxable objects, cases where businesses are registered but conceal taxable activities, underreport turnover, income, property, or employee data.
And third, there is the issue of preferential tax regimes and tax benefits, which sometimes exclude individuals from the obligation to register as taxpayers.”
Dznelashvili pointed out that Georgia’s Tax Code allows certain activities to operate under simplified tax regimes, such as salons, bakeries, car washes, and workshops, where entrepreneurs pay a fixed monthly fee (for example, 50 or 100 GEL) without the need to report turnover or income.
“This is not correct,” he said. “We have no information about the status of microbusinesses or fixed-tax individuals, what their turnover is, what income they earn, or the scale of their activity. This is one of the key shortcomings.”
He emphasized that all economic actors should be required to both register and declare their activities, arguing that comprehensive registration and transparent reporting are essential for effective tax administration and for reducing the size of Georgia’s shadow economy.
