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The author is grateful to Valeria Fichera, Vitaliy Kramarenko, and Ricardo Varsano for their useful comments on earlier drafts. This paper has also benefited from comments and factual clarifications by staff from the ministries of Finance, Taxes, Economic Development, and Customs officials of Azerbaijan.
This paper presumes that the non-oil tax revenue to non-oil GDP ratio should remain broadly unchanged over the medium term. The discussion of the adequate size of public expenditures is beyond the scope of this paper.
In this section, non-oil tax revenues include social security contributions (SSCs).
This is a turnover tax at rates of 2 to 4 percent collected from small taxpayers in lieu of the VAT.
In the rest of the paper, VAT revenues for Azerbaijan also include revenues from the simplified tax.
Azerbaijan’s progress and main issues in tax administration, as well as key recommendations for improvement, have been presented to the Azerbaijan authorities in two confidential Technical Assistance (TA) reports prepared by TA mission teams from the IMF Fiscal Affairs department in 2005 and 2008.
See Cabinet of Ministers Ordinance No. 220 issued on December 30, 2007.
The estimates of revenue potential from VAT and customs duties were calculated on the basis of exemption rates and average statutory customs duty rate which have been assessed by the authorities.
The authorities’ data show a decline in the share of exempt consumption from 32.0 percent of total consumption in 2004 to about 29.6 percent by 2006.
The customs authorities noted that the average statutory customs duty rate declined after 2004. However, the new rate has not been made available to IMF staff.
This group includes countries with very different per-capita income levels, progress with market-oriented policies, and institutional development (Table 6).
Changes in social security contribution rates should only be considered in the context of a wider reform of the social security system.