Georgia's Economic Development
2004 - 2008

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We don't wait for bilateral and multilateral agreements
- we unilaterally open our country
 Tariffs, technical requirements, visas, financial market etc.
 No visa requirements for more than 50 nations
 Increased number of tourists, Georgia - world's fastest growing destination
Number of tourists increased (yoy):
2005 by 49%
2006 by 76%
2007 by 76%

 No quotas on import/export
 Instead of 16 rates (up to 35%) - 3 rates - 0%, 5% and 12%
 0% rate on 90% of goods
 12% and 5% rates only on some agricultural products and construction materials
 Effective rate - 0,62 %
 Customs tariff - 0,3% GDP
 Non tariff barriers - technical requirements of EU/OECD/CIS countries are accepted in Georgia as equal to national requirements

International trade increased by export import
2005 52 54
300%
2006
2007
15
4
13
5

 Only 6 taxes: Income, Corporate Profit, VAT, Property,
Customs and Excise
 Total wage taxation
2004 40%
2005 27%
2006 25%
 Fiscal amnesty for tax evasions before 2004
 Land tax merged into property tax
 Income tax from 25% stepwise to 15% 2009/2014
 No income tax for capital market incomes
 Any income received by resident individuals from nondomestic sources exempted from personal tax
 Tax revenues (inflation adjusted) increased by 80% between
2005-2007

VAT
Income
Tax
Social Tax
Taxes number reduction
25
20
15
10
5
0
22
2004
2004
20%
12-20%
7
2005
2005
20%
12% flat
7
2006
2006
18%
12% flat
7
2007
2007
18%
12% flat
6
2008
2008
18%
33% 20% 20% 20%
6
2009
2009
18%
Social Tax and Income
Tax merged into Income tax
32% 25%
25% 15% abolished
Corporate
Profit Tax
20% 20% 20% 20% 15% 15%

 Reduced number of licenses (300 86) and permits (600 50)
(almost 85% reduction)
 ‘One-stop shop’ licensing principle
 Adoption of ‘silence-is-consent’ rule
20 days for issuing permit
30 days for granting license
 Tradable and dividable rights for natural resources are auctioned
 Less paper for construction permits: reduced number of: steps for permitting process 29 17 days for putting new commercial construction into use
282 137

Property Registration
 reduced number of – steps (6 3); days (9 2) for registering property
Business Registration
 business and tax registration – merged into one simple process
30 days 3 days from 2006
3 days 1 day from 2008
 No paid-in-capital requirements

 Contractual relationships between employers and employees
 Salary is subject to agreement between parties
 No restrictions on the duration of term contracts and the number of overtime hours
 severance pay as in contract, or by default one month of severance pay

 Fiscal surplus is mandatory and will be accumulated in the Future Generations Fund and Stable Development
Fund
 Central bank responsible for inflation
 Foreigners can be members of central bank board
 If inflation is above threshold, parliament must conduct vote of confidence of CB president
 Financial Supervisory Agency (FSA) responsible for supervising the whole financial sector

 International Financial Companies (IFCo) introduced - any can establish IFCo for overseas business, enjoying zero profit tax and simple regulation
 Demutualization of stock exchange
 Existence of several stock exchanges is allowed
 Remote foreign membership of stock exchanges allowed
 Access to locally traded securities for broker-dealers licensed in OECD countries
 Deregulation of intra-corporate relationships
 Allowing company re-domiciliation to Georgia and from Georgia
 Foreign reputable financial institutions don’t require licensing for business in
Georgia
 Securities, traded on recognized foreign exchanges, can be traded in Georgia after notice
 No licensing of money exchanges

International airports
Railways
 done ongoing
Sea ports
Generating and distribution electricity assets
Natural gas distribution companies
Agriculture land
 done
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 done done
Natural resources and forests through tradable rights
 done ongoing

 Road transport liberalization – abolished transit fees, quotas and other transit barriers
 Liberalized railways tariff policy
 ‘Open Sky’ policy – abolished restrictions on the number of passengers, destinations and frequency of flights

 Electricity
Long-term contracts are allowed
Deregulated new capacities
Vertical integration is allowed
 Natural Gas
No price regulation of wholesale tariffs
No price regulation of new gas networks

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 Healthcare system – Hospitals competing for patients
- from state owned hospitals, heavily underutilized with 17 500 hospital beds, to 100 new and modern private hospitals with 7 800 hospital beds
- 90% of our population will be within 30 minutes in hospitals
- healthcare facility license reduction for more than 40 4
 Health insurance for needed
- from plain inefficient coverage – to means tested benefits
 Education system – School choice and university choice
- the old national admission exams were abolished by instituting competitive national testing
- restructured financing system of education – student chooses where to study and the finances follow him, regardless whether school/university is public or private

Export in Goods (FOB US$ mil)
2500
2000
1500
1000
500
0
831
2003
1092
2004
1472
2005
1667
2006
2104
2007
3500
3000
2500
2000
1500
1000
500
0
1287
Export of Goods & Services (US$ mil)
3240
2567
2184
1644
2003 2004 2005 2006 2007

2500
2000
1500
1000
500
0
313
2003
446
2004
487
2005
1308
2006
2156
2007

2500
2000
1500
1000
500
0
919
2003
1187,6
1478,7
1758,7
2004 2005 2006
2315,4
2007
4500
4000
3500
3000
2500
2000
1500
1000
500
0
2500
2003
3800
3365
3100
2004 2005 2006
4200
2007

Public sector reform - increased salaries (15 fold), increased motivation, reduced number of civil servants, young, qualified professionals attracted
Judicial reform - 126 well-trained judges appointed on the basis of rigorous interviews; Unified Sertification Exam for judges, lawyers and prosecutors; High School of Justice established; increased efficiency of the court process, speedier trials and full protections of the rights of accused; clear separation of first and second instances; salaries and pensions for judges increased; increased independence of courts - president no more a chair and even a member of Council ; conflicts of interest eliminated - minister of justice and parliament no longer appointpermanent member of the Council; clear discipline procedures for judges
Whistleblower Protection - right to claim compensation for monetary and moral damages if their rights are violated due to their decision to disclose particular
Information Criminal justice reform - increased oversight of the Prosecutor's office over the preliminary investigations avoid violating human rights; the limit on pre trial detentions reduced from 9 down to 4 months and on trial detention from 24 to 12 months; defendant has right: to invite 2 people to witness any Investigative actions or searches, to conduct a private investigation; time limits for criminal investigations are abrogated to study a given case and circumstances thoroughly
Prevention of Torture and Inhumane Treatment - criminal sanctions for acts of torture and inhumane treatment increased, different oversight mechanisms used,
TV cameras in the prisons, low enforcement officials are obliged to file a report, including a description of a detainee's physical condition upon the arrest, the suspects can use their own recording equipment during interrogation; the Optional Protocol of the Convention Against Torture and Other Cruel, Inhuman or
Degarding Treatment or Punishment is ratified; the Office of the Prosecutor General was downsized by more than 40%, salaries raised dramatically/ reduced incentive for corruption; increased transparency - Prosecutor's Office no longer supervises the penitentiary system; within the Interior Ministry, Prosecutor's Office and Prisons' Departments human rights departments established staffed by former representatives of NGOs; Human Rights Protection Unit established at the
Prosecutor's Office; within the department of prisons the Office of Prisoners' Rights Protection established; the persons authorized by the Public Defender have unlimited access to any pre-trial detention facilities Penitentiary System Reform - organized crime leaders were separated from other prisoners, housed in max security facilities, they no more receive special treatments or unauthorized benefits, new prisons are built, expenditures for food, hygiene and medical care significantly increased; the tuberculosis screening programs are conducted permanently; relevant enforcement agents are equipped with special protective gear and rubber bullets, use of which should be avoided as much as possible; the libraries are equipped with better resources, including newspaper subscriptions
Anti-corruption activities - anti - corruption strategies and action plan, legislative groundwork for extensive reforms that institutionalize fight against corruption, compliance with international standards - recommendations from GRECO; According to BEEPs: bribe frequency decreased 5 times; bribe tax
Frequency - 5,5 times; frequency of bribery in tax administration 3,3 times; frequency of bribery for business licensing and permits has decreased 4 times
- State anti-monopoly service and state price inspection were abolished; procedures for registration were simplified, 'one stop shop' principle introduced; founder/partner obligations towards creditors changed; clear terms and procedures for partnership inputs; taxation department made responsible for registration; public servant representativness made possible in the supervisory board - increased transparency
Land reform - privatization of state owned agriculture land; effective privatization methods introduced; 0% of property tax on small plots of land (less than 5 ha); 0% property tax on property transaction; 0% of profit tax; 0% VAT on primary supply of agricultural products; 0% of import duty on agricultural equipment
Food security reform - the concept of reform based on the principle of informative choice - well protected consumers rights; the general principles of the reform is as follows: identification of potential risks and prevention; regulation of companies for the purpose of food security; methods of food security defined; control system of risks created within companies; the high and low risk group spheres of food production separated and created the effective method of state control; the aspects related to food quality defined; the food companies separated on the basis of penitential risks
Water resource management reformconcept of water resources basin management is developed, permitting system of water abstraction and waste water discharge in place; concept includes the principles of river basin management - terms and conditions enabling the river basins to be transferred in a long term use, also contains the principles on which the water prices differ, concept gives well defined rights and responsibilities of supervising control bodies Protection of rights on private property - property amnesty Sport infrastructure reform - from state owned sport centers to multi profile private sport complex, enhanced competition, improved management Agriculture Sector Development reform - aims to enhance entrepreneurship in villages and to increase locally produced product export, thus reduce unemployment and poverty at villages and etc
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