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February 3, 2004
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The Flat Tax Might Spread to Georgia

by Alvin Rabushka

Georgia's new president, Mikhail Saakashvili, was inaugurated on January 25, 2004. Five days later, speaking before the anti-corruption group Transparency International in Berlin, he stated his new government's top two economic priorities. The first is to introduce a new flat-rate tax system. The second is to create incentives for foreign investors.

Saakashvilli noted in his remarks that Georgia had far more tax officials than his small country needed. He wants to reduce the scope and size of the tax collection apparatus and reduce the disincentives of the current tax system.

The current system of personal income taxation is based on the Georgian Taxation Code of 1997. Personal income is taxed at four rates: 12% on income exceeding 200 Georgian laries, 15% between 201 and 350 laries, 17% between 351 and 600 laries, and 20% above 600 laries. Each individual receives a monthly deduction of 9 laries per year. ($1 equals GEL 2.156) The president did not indicate any specific flat rate in his address. If Georgia's neighbors of Russia and Ukraine are a model, the rate could be set as low as 13%.

Adoption of a flat tax in Georgia would add one more country to a growing list that has adopted a flat tax. The chronology is Estonia (implemented in 1994), Latvia (1995), Russia (2001), Ukraine (2004), and Slovakia (2004).