Investigating changes in the tax levied on deposit interest in the Republic of Azerbaijan

According to the international group Tasnim News Agency, in 2016, tax deduction It was suspended on the income from the interest received by the citizens in the banks of the Republic of Azerbaijan for 7 years.

At that time, the banking sector of Azerbaijan was in a serious crisis. Two devaluations in 2015 destroyed half of the country’s banks and eroded public confidence in banks. At that time, the government of Azerbaijan tried to prevent people from withdrawing their funds from the banks by giving them a 7-year tax exemption. However, in 2017-2015, a decrease of 3 billion Manat has been recorded in the amount of deposits held in Azerbaijani banks.

Although the tax exemption applied to deposit income expired on February 1 of this year, the Azerbaijani government did not extend this decision. Therefore, from February, citizens will have to pay 10% income tax on the interest they earn from their funds in banks. that the banks for the funds that the customers keep in their bank cards. /span>

In July 2023, it was announced that after the implementation of the new decision, 24 million manats from the interest of citizens’ bank deposits for 5 months from February to June will be taxed. has been Therefore, the implementation of this decision has brought more than 5 million manats to the budget every month. This also means that within 5 months, citizens received approximately 216 million manats from their bank deposits.

It should not be forgotten that due to the high inequality of wealth in Azerbaijan, a large part Of the deposits kept in banks, it belongs to a small group of customers. For example, it was revealed that more than 70 million manats of deposits belonging to one person were discovered in “Gonai Bank”, whose license was revoked some time ago. According to the deposit insurance law, deposits up to 100,000 manats are considered insured in Azerbaijan.

According to the figures announced by the Central Bank of Azerbaijan, before the implementation of this decision, in January 2023, the volume of term deposits belonging to individuals Haghigi in Azerbaijani banks was 6 billion 204 million manats.

After the new tax came into effect at the end of February, this figure reached 6 billion 336 million manats. This is despite the fact that in March 2023, the volume of term deposits of individuals after paying the tax on the profits of customers for the first time reached 6 billion and 311 million manats, that is, it decreased by 25 million manats.

From this point of view, it can be said that the new decision has reduced the volume of deposits. In the following months, it is clear that the citizens are used to this decision. At the end of 9 months of 2023, the volume of term deposits of citizens in Azerbaijan banks increased to 6 billion and 745 million manats.

Proposals for new changes

After less than a year has passed since the tax decision on the interest received by natural persons for bank deposits, the government of Azerbaijan is considering changes in these mechanisms.

RTL”>In the anticipated change, it is proposed not to be taxed on the interest earned by citizens on deposits kept in banks up to 200 manats. Another proposed change is a full tax exemption on interest payments for those who deposit their money in banks for at least one and a half years and receive the interest at the end of the period rather than every month.

From this proposed change, it is clear that the government of Azerbaijan encourages citizens to make long-term deposits.

However, as long as the traditional risk factors associated with the economy of Azerbaijan continue, it can be It is not thought that the citizens are very interested in long-term deposits in banks.

However, the state of this country’s economy depends on energy revenues. Energy income can also decrease drastically in a moment.

More than 90% of Azerbaijan’s export income is made up of oil and gas income. According to these revenues, the currency entering Azerbaijan is more than the currency leaving this country. For this reason, there is currently no risk related to the Manat rate, but the bitter experience of 2015 shows that the current situation can change in a very short period of time.

It should not be forgotten. that the price of energy is not formed only because of economic factors. In recent years, geopolitical events in the world have given more direction to energy prices.

The last time was in March 2020, when the price of oil dropped to $16 after the announcement of the Corona epidemic in the world. found, confusion arose in the banking sector of Azerbaijan. At that time, citizens rushed to the banks and tried to convert their savings into dollars.

It should not be forgotten that since then a limit has been set for the purchase of currency by citizens in Azerbaijan. They can buy foreign currency equivalent to 20 thousand manats during the year. In such an environment, encouraging citizens to make long-term deposits in banks without eliminating the strong dependence of Azerbaijan’s economy on energy revenues does not seem valid.

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