PROBLEMS OF DISTRIBUTION OF TAX REVENUES BETWEEN BUDGETS OF DIFFERENT LEVELS IN GEORGIA

Ekaterine Shainidze E-mail: [email protected] Associate Professor, Batumi Shota Rustaveli State University Georgia, Batumi https://orcid.org/0000-0002-3612-1790 Vazha Verulidze E-mail: [email protected] Professor, Batumi Shota Rustaveli State University Georgia, Batumi https://orcid.org/0000-0003-1752-8955 Abstract: The main source of mobilization of budgetary funds is tax revenues. One of the important levers of the state in ensuring the socio-economic development of the country is the fair distribution of tax revenues between budgets of different levels, since fiscal independence is an essential factor in coping with the challenges facing autonomous republics and municipalities. The correct selection of the mechanism for distributing tax revenues between budgets of different levels is crucial in this process. In Georgia, as in other developing countries, a large share of tax revenues comes from indirect taxes. According to the Budget Code of Georgia, excise and import taxes are fully transferred to the state budget, while 19% of the funds mobilized in the form of VAT go to the budgets of municipalities, and the remaining 81% to the state budget. According to the Tax Code of Georgia, only one local (property) tax is imposed in the country. The source of tax revenues of the autonomous republic is only the income tax paid by taxable entities registered in the territory of the autonomous republics. Despite certain legislative changes, under the existing model of tax revenue distribution, the degree of dependence of local budgets on transfers from the state budget is high. In addition to the above, the types of taxes established by tax legislation (only general-state and local) are compatible with unitary states and include only a two-level budget, while the state structure envisaged by the Constitution of Georgia corresponds to a three-level government. Thus, in order to effectively fulfill the tasks facing municipalities, it is crucial to increase their fiscal independence, which is possible by strengthening the tax regulatory function and developing a proper mechanism for distributing tax revenues. Keywords: Tax revenues, fiscal independence, tax revenue redistribution. JEL classification: H2, H61, K34, E62