Tax exemptions in Abkhazia: will it revitalize the economy or turn the republic into an offshore?
Tax incentives in Abkhazia
Abkhazian authorities intend to attract large investors by providing them with unprecedented benefits. The opposition is against it, believing that this will turn the republic into an offshore zone and will severely damage its image.
What is the essence of the benefits?
The amendments to the law “On Investment Activity” envision the introduction of tax benefits for investors who have invested more than 2 billion rubles [about 20 million euros] in the republic.
The investor will be fully exempt from paying income and property taxes for 25 years.
These amendments have already been approved by the parliamentary committee on economic policy and are to be put forward at the next session.
“Foreign capital” = “Russian capital”
Theoretically, the amendments to the law concern any investors, including local. However, the reality is that even the most successful Abkhazian businessmen do not have free funds in the amount of 2 billion rubles. That is, only foreign business will be able to take advantage of generous benefits, which puts local entrepreneurs in knowingly unequal conditions.
In this case “foreign business” means “Russian business”, who now, having found themselves under Western sanctions, have seriously turned their attention to Abkhazia.
Reconstruction of Sukhumi airport, “law on apartments” lobbied by President Aslan Bzhania – these and other major projects with participation of Russian business have already made a lot of noise in Abkhazia and caused discontent or at least skepticism among many.
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Why is the opposition against it?
The opposition believes that the practice of applying benefits for investors in Abkhazia shows their ineffectiveness, and through the new amendments the republic may even turn into an offshore zone.
“We also responsibly declare that turning our country into an offshore zone carries risks and threats and will entail inclusion of Abkhazia in all kinds of black lists as a gray zone for laundering illegally earned capital,” reads a joint statement of opposition organizations.
“Because of this “preferential policy”, the Russian Ministry of Finance blacklisted us in 2015, as we fell under the characteristics of an offshore zone. Now history may repeat itself,” economist Akhra Aristava says.
In addition, according to Aristava, the policy of long-term privileges for big capital means that the state treasury will be deprived of serious financial revenues. Accordingly, the government will not be able to improve the social package and increase the size of paltry pensions and salaries for public sector employees.
Tax incentives in Abkhazia
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