Tax Reform in Georgia: A Far-Reaching Reorganisation

Georgia, formerly part of the old United Soviet Socialist Republic, had a long history of poor tax collection until a new government took power in 2004. The new leaders introduced a radical overhaul of the tax system that combined a simplification of the tax code with improved tax administration, increased tax enforcement and an anti-corruption campaign.

The rigorous and far-reaching nature of the reform was a major contributor to its success, as was the fact that this was a government-led process, according to Aleksi Aleksishvili, former minister of finance in Georgia from 2005 -2008.

“The most important issue was the comprehensiveness of the whole reform agenda that the government had,” said Mr Aleksishvili. “And secondly that it really was a government driven and not donor driven process.”

The reform had the full backing of the top leadership of the day and was related to a review of all the public sector systems.

“There was not only tax system reform,” said Mr Aleksishvili, “there was deregulation of the economy, liberalisation, elimination of licenses and permits and bureaucratic kind of burdens, and so on.”

While there are a number of lessons to be learned from the example of tax reform in Georgia, Mr Aleksishvili warned against attempts to try to replicate such a reform without understanding the wider political and economic context of the country concerned.

“To take [the reform] as it was done in Georgia and blindly copy that somewhere else – that is not possible, of course.”

According to Mr Aleksishvili donors can become too entrenched in existing government systems, adding that in some cases, this can impinge necessary reform that developing country governments need and should carry out.

“The international donor community should be more flexible,” said Mr Aleksishvili.  “Donors should encourage changes or reforms if these reforms and changes of course are contributing to the development of an institution or the whole country or the society.”