Delivering a speech at the Parliament on 13 November 2013, Minister of Finance of Georgia, Nodar Khaduri, stated:  “Concerning the refund of VAT, I would like to declare that the refunds of this year [January-October] exceeded those of the last year by [GEL] 70 million. In addition, we reached the decision to allow the Minister of Finance to channel VAT taxes not to the budget but to the sub-account formed for the return of overpaid taxes. A total of 10% of VAT taxes will be directed to this sub-account.”


took interest in the accuracy of the Minister’s statement and we tried to establish what amount had been refunded to the business sector this year as well as in previous years.

Prior to discussing the immediate subject of our research, it might be of interest to the reader to discuss the essence of VAT and the refunding of VAT. We will use the guidebook Characteristics of Taxing Not-For-Profit Legal Entities in Georgia prepared by Policy, Advocacy and Civil Society Development in Georgia (G-PAC) as a source. The abovementioned research explains the concept of VAT; i.e., Value Added Tax, as follows:  “Any goods from production to final consumption go though several stages:  extraction of raw materials – processing – final production. For instance:

  1. The process is: wheat-flour-bread
  2. The sale of products at all stages is subject to VAT (rate – 18%)
  3. All numbers in the example are conditional and do not represent any established proportions. Additionally, we should take into account that VAT, as a so-called “indirect tax,” is imposed upon the final consumer (population) of the product. The final consumer is paying the tax via “transit;” i.e., through the seller. The price of most of the products we purchase everyday includes VAT; the store is responsible to pay this tax to the budget. Let us discuss the example further:

1st stage:

  A person is selling wheat and wants to obtain GEL 100 after the realisation. He has to add GEL 18 as a VAT to GEL 100 and sell his wheat for GEL 118. Out of this amount, GEL 100 belongs to him as “net value” while he pays GEL 18 to the budget; i.e., 100 + 18 = 118.

2nd stage:  

The wheat was purchased and milled by a miller who wants to sell it as flour. He also wants to get GEL 100 for the flour. Therefore, the calculation would be:  the cost of the wheat (GEL 100) plus the desired surplus (GEL 100) and 18% (GEL 36) of the total sum (GEL 200). The flour is sold for GEL 236; i.e., (100 + 100) + 200*18% = 236. Thus, the miller has to pay GEL 36 to the budget as VAT; however, he takes into account GEL 18 paid to the budget at the first stage (this is called - crediting VAT) and pays only GEL 18 to the budget. That is precisely the reason why we estimated the prime cost of wheat in the amount of GEL 100 and not GEL 118 (the amount the miller paid for the wheat) as GEL 18 is “returned” to him from the budget as a refund.

3rd stage:  

The flour was bought by a factory which baked bread and sold it. The amount the factory wants to obtain by selling the bread is again GEL 100. Therefore, the calculation would be:  the cost of the flour (GEL 200) plus the desired surplus (GEL 100) and 18% (GEL 54) of the total sum and the bread is sold for GEL 354; i.e., (200 + 300) + 300*18% = 354. The factory has to pay GEL 54 to the budget but it takes into consideration GEL 36 paid at previous stages and pays only GEL 18 to the budget. This means that GEL 100 will be charged by 18% at each stage and the amount of GEL 18 will be paid to the budget at each stage. The main peculiarity of VAT is that it is a “local” tax valid on the territory of the country that has introduced it. For example, if a Georgian resident supplied goods from Turkey to Italy, this operation will not be subject to VAT in Georgia.

Based upon the same research, we will further clarify the essence of refunding VAT:  “A factory purchased raw material for producing certain goods and paid GEL 59 including VAT; i.e., this amount contains GEL 9 as VAT. The factory produced certain goods from the material purchased and wanted to sell it for GEL 100; however, since this operation has to be charged by VAT, the factory added 18% to the cost and sold the goods for GEL 118. In total, GEL 18 is to be paid to the budget as VAT, but as the factory has already paid GEL 9 VAT while purchasing the raw material (the supplier included this amount in the price the factory paid for the raw material), it has to pay only GEL 9 instead of GEL 18 (18 - 9 = 9). This information is to be indicated on the VAT declaration form and is called VAT refund.”

As can be gathered from the information given above, VAT credit is important and beneficial for the business sector. FactCheck

requested from the Ministry of Finance the information on the amount of VAT refunds for 2013 (January-October), as well as for previous years. We received a response to our letter (sent on 22 November 2013) from the Ministry on 13 January. The table below displays the data obtained from the Ministry:

Period under Review VAT Amount Accumulated in the Budget (GEL)  Refunded VAT Amount  Percentage (%)
2011 2,784,346,300 68,852,800 2.5
January-October 2011 2,245,269,500 49,311,300 2.2
2012 3,040,331,800 140,777,400 4.6
January-October 2012 2,494,992,700 131,655,400 5.3
January-October 2013 2,290,194,500 73,857,900 3.2

The letter of the Ministry of Finance indicates that the balanced tax surplus was reduced by GEL 109,517,491 from 1 October 2012 to 1 November 2013 (from GEL 1,268,623,323 to GEL 1,159,105,832) which provoked the reduction in the refunded VAT.

As shown in the table above, the refunded VAT amount equalled GEL 131,655,400 in January-October 2012. In 2013, the refunded VAT amount comprised GEL 73,857,900 which is less than the amount of the same period of 2012 by GEL 57,797,500.


Our query about the accuracy of Nodar Khaduri’s statement revealed that in January-October 2012 the VAT amount channelled to the budget comprised GEL 2,494,992,700; a total of GEL 131,655,400 from this amount was refunded to the business sector. In January-October 2013, a total of GEL 2,290,194,500 was accrued in the budget through the paid VAT; GEL 73,857,900 from this amount was refunded. Based upon this data we can conclude that the amount of VAT returned in January-October 2013 is less than the amount returned in the same period of 2012 by GEL 57,797,500. Although, Nodar Khaduri claims that the volume of VAT refunded in 2013 exceeds that of 2012 by GEL 70 million.

Based upon our research we can assert that the claims of the Minister of Finance are entirely untrue. Thus, we conclude that his statement: “Concerning the refund of VAT, I would like to declare that the refunds of this year exceeded those of the last year by [GEL] 70 million,” is a LIE.