Tax Code Amendments To Have Negative Impact on Georgian Investment Environment - საერთაშორისო გამჭვირვალობა - საქართველო

Tax Code Amendments To Have Negative Impact on Georgian Investment Environment

28 December, 2011

Transparency International Georgia has analyzed the legal and economic implications and threats that could arise following the entry into force of the new regulations of tax liens. This has become particularly obvious now that we are witnessing how the aforementioned amendments are being applied in practice to certain financial institutions. We believe that the new rules for determining the priority of liens will have a serious negative impact on financial institutions and borrowers in Georgia, and will create an unfavorable environment for them. Moreover, these rules will also have a negative impact on foreign investment, as well as the Georgian financial and economic system as a whole. In particular:

  • Georgian banks and other financial institutions can no longer reply on the assets of borrowers as collateral because there is now the possibility that this collateral will be superseded by a tax lien discovered by the Tax Authority, even if the borrower had no tax obligations at the time the financial institution’s collateral was registered;

  • The loans given to the Georgian banks or non-banking entities (industrial companies, etc.) by international financial institutions (IFIs) will bear serious risks. The amendments also undermine the credibility and value of Georgian financial institutions, as business partners on international stage;

  • Borrower’s property will no longer be reliable as collateral, because a document from the public registry about the absence of borrower’s liens will no longer guarantee anything. Consequently, the banks are likely to request additional collateral before issuing a loan;

  • The amendments are an infringement on property rights. For this reason, the creditor might require additional collateral outside Georgia or a guarantee from a company that operates outside the country. As a result, it will become even harder for a Georgian
    borrower to get a loan;

  • The amendments will also affect on foreign investment. The largest foreign investments in Georgia, are often financed by IFIs (OPIC, EBRD, IFC, ADB). Such loans used for financing foreign investment in Georgia are almost always secured by Georgian assets that the foreign investor has acquired as part of investment. Now the aforementioned amendments increase the risks associated with the country and IFIs will no longer rely on the security of such Georgian collateral. Therefore, they will not be willing to loan to foreign investors based on property registered in Georgia. This will essentially reduce the amount of foreign investment, especially “western” and non-governmental investment;

  • The reduced amount of potential foreign investment, resulting from the tightening of credit terms (because of the unreliability of collateral) will have a negative impact on the country’s economic development and could also increase unemployment.


Transparency International Georgia believes that the aforementioned risks should have been
assessed before the amendments to the Tax Code were adopted. This is only a short list of the potential problems that the local and foreign investors might face in Georgia. In this regard, we urge representatives of the business sector to contact us and share their opinion on these issues.

Author: Natia Kutivadze