Page 29 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.76, # 2, 2019, pp. 21-30

advisable to reduce the tax burden on VAT from the current 2.7 percent to a level of
2.64 percent. Given the fact that the current VAT rate in Azerbaijan is 18 percent, to
achieve the optimal level of VAT revenues, the rate should be reduced to about 17
percent. It should also be noted that although the VAT rate in Azerbaijan is 18
percent, the reason that the tax burden turned out to be so low is that some types of
activities in Azerbaijan are exempted from VAT, and some are taxed to VAT at a
zero rate. A case in point, the firms producing a significant proportion of GDP
engaged in hydrocarbon activities based on the Production Sharing Agreements are
subject to zero-rate VAT. On the other hand, to maximize the ratio of tax revenues
to the budget, it is possible to increase the tax burden to 3.21 percent. But in that
case, the economic growth in the country will suffer significant loss and this, in turn,
will lead to a decrease in economic activity and also to the decline in the volume of
VAT receipts in the state budget.

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