GEO

Tax Amnesty for Georgian TV Channels: A Subsidy for Pro-Government Reporting?

07 April, 2010

Georgian television stations are currently owing about GEL 36 million (USD 20.6 million) in taxes and fines to the Ministry of Finance. The government recently submitted a draft amendment of the tax code to Parliament which is likely to be adopted soon and will provide a tax amnesty for all Georgian television stations, the national Tbilisi-based stations as well as regional channels. The major beneficiaries of the tax amnesty will most likely be the national channels, Rustavi 2 and Imedi, which have a staunch pro-government editorial line and whose major shareholders remain dubious, as well as the Georgian Public Broadcaster, which is facing serious financial constraints.

However, the draft amendment states that the names of the stations benefiting from the government's act of grace will not be published, arguing that the tax code defines such data as private information. In his state of the nation address to Parliament, President Mikheil Saakashvili in late February said that "all television stations are operating in the condition of tax debt, especially the ones in provincial regions. So I offer to declare tax amnesty for all the television stations in the provincial regions."

Some observers estimate that out of the GEL 36 million, not more than five or six will cover the debts of television stations in the regions (Rezonansi, April 7). One of the beneficiaries will be Channel 25, an independent station in Batumi. It's owners do not recognize the station's tax debt of GEL 277,500, claiming that it was accumulated before 2004, when Aslan Abashidze, the local strongman, controlled the company. However, research conducted by TI Georgia indicates that a number of local TV stations are officially owned or controlled and funded by individuals closely connected to local authorities or the ruling United National Movement party. Some of these stations are likely to profit from the tax amnesty as well.

In contrast, TV channels that are critical of the Government or leaning towards opposition parties, most prominently Kavkasia TV and Maestro, two channels broadcasting in Tbilisi, state that they do not owe any taxes. Their claims seems credible. Unpaid taxes would make media outlets that are outspoken critics of the government an easy target for tax officials and the financial police. The fact that some stations had paid their taxes while others get away with not paying millions in obligations creates an unfair competition in the TV sector, favoring stations whose editorial policies favor the government and the ruling United National Movement party or which are under the de-facto control of people close to the administration.

A TI Georgia report on the Georgian television sector found that numerous TV stations, most prominently Rustavi 2 and Imedi, receive outside funding in addition to their advertising revenues. However, the source of these subsidies and the ownership of many television outlets is non-transparent (the same is true for most Georgian media companies and a number of major enterprises in the country). Already, the playing field level in the Georgian media market is everything but even.

In the past, managers of Kavkasia TV and Maestro as well as owners of other independent media outlets have stated that potential clients are pressured to refrain from advertising with critical media outlets. Although such claims of government-intermingling have not been proven, the fact that many potential advertisers believe them deters many companies from advertising with media outlets critical of the government.

What is remarkable is not only that the proposed tax amnesty was submitted to Parliament only a few weeks before the May 30 local elections but also that it completely contradicts the approach of the Georgian tax officials in the past, who have a reputation of chasing down and fining all companies they suspect of tax evasion. The amnesty also creates a moral hazard.

Channels with a staunch pro-government editorial policy might be reluctant to pay taxes in the future, hoping for another tax amnesty in two or three years' time. The failure to pay their taxes makes these stations an easy potential target for political pressure. The Georgian television sector has not seen any economic consolidation. There are currently about 40 to 50 channels on air throughout the country, including numerous tiny local and regional stations. The total net television advertising cake is estimated to be not larger than about $30 million (GEL 52.3 million), however little reliable and current data in this sector is available. A tax amnesty worth GEL 36 million for all television stations thus amounts to about 70% of annual advertising revenues for private TV stations.

If the government's aim for issuing the tax amnesty is to support a truly independent and pluralistic television landscape, it should find other ways to provide funding opportunities for stations that provide Georgians with value-added programming in a transparent way, defining specific criteria and productions that could be awarded some co-funding through an independent body. The proposed draft, however, mostly provides financial relief for TV stations loyal to the government, without addressing the lack of ownership and financial transparency in the sector and making it even more difficult for independent stations to compete.

Author: Mathias Huter
Media