Budget Revenue Growth: A Sign of Economic Resilience or Effective Tax Policy?

The growth in tax revenues in Georgia’s budget during the first two months of 2025 highlights both the economic dynamism and the efficiency of tax administration. According to the State Treasury, the budget collected 3.903 billion GEL during January-February, up 9.4% compared to the same period in 2024 when the figure was 3.566 billion GEL. However, while revenue is growing overall, certain areas are showing declines, indicating potential vulnerabilities.

Key Growth Areas:

1. Income Tax:

   • Increased by 15%, reaching 1.374 billion GEL.
   • Likely driven by higher wages or improved employment rates.

2. Value-Added Tax (VAT):

   • Grew by 5.4%, surpassing 1.582 billion GEL.
   • Reflects increased economic activity, as VAT is directly linked to domestic consumption.

3. Corporate Profit Tax:

   • Increased by 12%, totaling 397.5 million GEL.
   • Suggests improved profitability among businesses and economic recovery.

4. Other Taxes:

   • Increased by 70%, reaching 265.2 million GEL.
   • This category is less stable and may be influenced by one-off or short-term factors.

Declining Revenue Streams:

1. Property Tax:

   • Decreased by 35%.
   • Could be related to changes in the real estate market dynamics or adjustments in tax relief policies.

2. Excise Tax:

   • Dropped by 22%.
   • This decline could be due to reduced sales of alcohol and tobacco or new tax relief measures on these products.

3. Import Duties:

   • Reduced by 7%.
   • This might indicate a decline in trade balance or decreased imports, possibly due to an increase in local production or supply chain disruptions.

Interesting Observations:

The trend in VAT revenue is particularly intriguing. In January, the decrease was linked to potential economic difficulties and reduced consumption. However, in February, VAT revenue surpassed 776 million GEL, indicating an increase over the previous year. This change may be attributed to seasonal or short-term factors.

Analysis:

The growth in budget revenue suggests that Georgia’s economy is showing signs of resilience and recovery. Improved employment, higher wages, and better corporate profits all contribute to positive revenue growth. However, the decline in excise tax and import duties indicates certain vulnerabilities, particularly in sectors dependent on trade and specific consumer goods.

Future Considerations:

For continued economic growth and revenue stability, the government should focus on:

• Ensuring sustainable economic activity rather than relying on short-term revenue increases.
• Addressing the reasons behind the decline in excise tax and import revenues.
• Balancing fiscal policies to maintain budget stability without burdening businesses and individuals.
• Encouraging local production to reduce import dependency and boost internal revenue generation.