Azerbaijan's parliament, the Milli Majlis, has finished three days of discussions on the draft budget for 2010.
Speaker Ogtay Asadov said that the government now has two weeks to consider the proposals submitted during the parliamentary discussions. The draft budget will then be returned to parliament for ratification.
Budget deficit
Finance Minister Samir Sharifov made a speech at the close of the debates. He said that Azerbaijan has sufficient resources to meet the budget deficit.
"The budget deficit for next year is forecast at AZN 1.249 billion ($1.561bn), or 3.9% of GDP. We think this is all right, and we have sufficient reserves to cover the deficit," Sharifov said.
The 2010 budget forecasts revenue of AZN 10.015 billion ($12.519bn) and expenditure of AZN 11.264 billion ($14.08bn).
The minister said that the government has changed its approach to sources of funding to meet the deficit. From 2010, non-budget revenue of organizations funded by the budget will go towards meeting the budget deficit. Until now, this revenue has been included as part of the forecast budget revenue, but it is very difficult to forecast accurately, the minister said.
He said that the situation was similar with the revenue from privatization. "This revenue is also difficult to forecast, so for several years now we have been considering this revenue a source to meet the budget deficit. This revenue is forecast at AZN 55 million ($68.75m) next year."
The minister said that domestic and foreign borrowing, forecast at AZN 1.049 billion ($1.311bn), will be the third source of funding to meet the budget deficit.
He said that the government's conservative approach to the oil price, setting a price of $45 per barrel in the budget, might allow budget revenue to exceed forecasts. "If the oil price next year goes up on average to $55-60 per barrel, we will have additional revenue of AZN 300-400 million ($374m-$499m). Don't forget either that expenditure is usually 96-97% of forecast, which also gives the economy an extra AZN 300-400 million. So there won't be a problem meeting the budget deficit next year."
Shadow economy
Commenting on proposals made in parliament, the finance minister said that the shadow economy accounts for 10.2 per cent of the overall economy in Azerbaijan and the State Statistics Committee takes this into consideration when calculating GDP. The shadow economy “primarily shows up in evasion of taxes and social payments, the work of individuals and legal entities without state registration and so on”.
He spoke about proposals to increase budget funding for the Public Television and Radio Broadcasting Company (ITV). Sharifov said that the state budget had allocated AZN 8 million ($9.97m) to ITV. According to the law, budget funding for the company was due to have ended in January 2010. “However, this term has been extended. There are other TV channels in Azerbaijan. In fact, ITV should be financed by its subscribers,” Sharifov said.
The minister said that AZN 6 million had been allocated for film-making in Azerbaijan.
Taxation
Earlier on Thursday, Tax Minister Fazil Mammadov told MPs that the amendments to the Tax Code due to come into force on 1 January 2010 will cost the state budget at least AZN 134 million ($167m).
The cut in the profit tax rate from 22 to 20% will reduce tax revenues by AZN 61.8 million ($77.08m), he said.
“The increase in turnover liable to taxation under the simplified system (4% rate) will cost AZN 37.8 million ($47.25m), while measures to stimulate the recapitalization of banks and insurance companies will cost another AZN 34 million ($42.4m),” Mammadov said.
The minister said that tax arrears to the state budget were AZN 5.9bn ($7.4bn) as of 1 October. As of 1 January 2009, tax arrears, including penalties, to the state budget were AZN 4.16bn ($5.2bn).
"As of 1 October 2009, 201,729 legal entities and individuals are tax payers in Azerbaijan. Of them, 21,549 have tax arrears while the overall volume of tax arrears is AZN 5.9bn ($7.4bn)," Mammadov said.
He said that almost half of the debt for unpaid tax is the result of interest and penalties. "Of the overall volume of debts AZN 2.7bn ($3.4bn) or 45.8% are interest rates and financial sanctions imposed for failure to pay tax on time."
The minister said that AZN 1.5bn ($1.87bn) are arrears of state enterprises, especially "old debts" of communal and housing services. He hoped that action taken over the past few years to improve the payment system in housing and communal services would help to bring about repayment of the debts.
Mammadov said that the private sector's main tax arrears are AZN 1.7bn ($2.12bn) and are mostly technical. Most tax declarations are submitted via the Internet. A special programme processes the data and if technical errors are found in the declarations, the programme automatically adds extra sums which can be quite a significant amount, Mammadov said. Additional taxes of AZN 1.5bn ($1.87bn) were calculated in the first nine months of 2009.
He said that the Ministry of Taxes, which registers businesses according to the one-stop shop principle, has not seen a fall in the interest of foreign investors in Azerbaijan.
Mammadov said that 3,7581 legal business entities have received state registration in 2009, including "some 1,000 companies with foreign investment”.
Culture
MP Nizami Jafarov, chairman of parliament's culture committee, said that the budget should not put culture and the arts together with sport. He recommended separating out these items in future and dividing the budget into literature, art, cinematography and other art forms.
Jafarov said that culture and the arts are less subject to legal regulation. He thinks that instead of overall financing of the arts it is more expedient to finance talent. As an example, he cited the system of personal pensions granted to prominent cultural figures who had been singled out by Azerbaijani national leader, the late Heydar Aliyev.
On Friday parliament will discuss the budget for the State Social Protection Fund and other documents in the budget package.
($1 is worth 0.80 Azerbaijan New Manats.)