Social Taxes. The article on Social Taxes of the Tax Code of Georgia stipulates a new system of social tax payment. According to the tax code of Georgia, social tax rates are as follows: The amount to be paid into the United State Fund of Social Security is equal to 28% of the salaries paid, out of which the employer has to contribute 27% and the employees have to contribute 1%, and the payment to the United State Fund of Employment is equal to 1% of the salaries paid, which  has to be contributed by the employers.

Medical Insurance Fee. Medical Insurance Fee for legal entities is equal to 3% of the salaries paid. Medical Insurance Fee for all employed persons is equal to 1% of their income (exemptions: compensation surplus for annual leave; bonuses; awards; pensions and allowances).

Social Security System. The social security system of Georgia is based on compulsory social insurance. According to the Presidential Decree dated by June 29, 2000 (No 278), issues relating to the assignment and distribution of state pensions and aids, definition of vulnerability and other medical-social expertise are the responsibility of the Ministry of Health and Social Security. The reform in social insurance system, which was recently carried out in Georgia, encourages the improvement of the social security system and the establishment of private pension funds.

Georgian Trade Unions League. Georgian Trade Unions League is a joint national professional centre of trade unions in Georgia. The main goal of the league is to protect the labor, socio-economical, legal rights and interests of its members. The league includes 33 trade unions and 2 member organizations. Currently, there are 900 000 trade union members in the different organizations of the league. Under the Constitution of Georgia all employees (workers) have the right to join Trade Unions. Georgian Trade Unions League, together with the member organizations, co-operates productively with the General Confederation of Trade Unions, International Labor Organizations, Trade Unions of United States of America, Germany, Denmark, France, Turkey, Israel and other countries. At present, treatment of an issue on accepting the League of Trade Unions of Georgia as a member of Free Trade Unions International Confederation is in progress.

Freedom of Association and the Right to Collective Bargaining.  The law prohibits discrimination by employers against union members, and employers may be prosecuted for antiunion discrimination and forced to reinstate employees and pay back wages; however, there are reports of managements warning staff not to organize trade unions. Some workers, including teachers in the Imereti region, employees of various mining, winemaking, pipeline, and port facilities, and the Tbilisi municipal government reportedly complain of being intimidated or threatened by employers for union organizing activity. Observers also claimed that employers failed to transfer compulsory union dues, deducted from wages, to union bank accounts. The Ministry of Labor has investigated some complaints, but no action has been taken against any employers to date.  There are no legal prohibitions against affiliation and participation in international organizations.  The Constitution and the law allow workers to organize and bargain collectively, and some workers exercise this right; however, the practice of collective bargaining is not widespread.

Forced Labour.  The Constitution prohibits forced or bonded labour, including by children, and provides for sanctions against violators.

Trafficking in Persons.  The law does not prohibit trafficking in persons specifically, although trafficking could be prosecuted under laws prohibiting slavery, forced labor, illegal detention, and fraud.  Georgia is both a source and a transit country for trafficked persons. There have been unconfirmed reports that government customs and border officials were involved in the trafficking of persons.  The Government has prosecuted some traffickers using fraud statutes, but otherwise has no active programs to address the problem of trafficking.  A government program for combating violence against women included a proposal for measures to eliminate trafficking in women for the purpose of sexual exploitation; however, it has not been implemented due to budgetary constraints.  Georgia itself is generally not a destination place for trafficked persons.

Effective Abolition of Child Labor. According to the law, the minimum age for employment of children is 16 years; however, in exceptional cases, the minimum age can be 14 years. The Ministry of Health, Social Service, and Labor enforces these laws and generally they are respected.  The Government has not ratified the ILO Convention 182 on the worst forms of child labor.

Elimination of Discrimination in Employment.  The Constitution provides for the equality of men and women.  Women's access to the labor market has improved but remained primarily confined, particularly for older women, to low-paying and low-skilled positions, often without regard to high professional and academic qualifications.  Salaries for women continued to lag behind those of men. Reportedly men were given preference in promotions. Of the 114,512 registered unemployed persons throughout the country, 46 percent were women. Women sometimes, but not often, filled leadership positions. According to UNDP, employers frequently withheld benefits connected to pregnancy and childbirth.

1.5.4        Regulations about Real Estate in Georgia

Acquisition of real estate in Georgia. The transfer of ownership rights on a real estate are regulated by the Civil Code of Georgia (set in force on November 25, 1997), by the Laws of Georgia on "Ownership of Agricultural Lands" (adopted on March 22, 1996), "Managing and Disposal of State-owned non-agricultural Land" (adopted on October 28, 1998), "Managing and disposal of non-agricultural land being in usage of physical persons and public legal entities"(adopted on October 28, 1998). Real estate includes land-lots with fossils (minerals), plants and real estate premises as well.

For the purchase of a real estate legally (notary) approved document and purchaser’s registration in general list is required. The application for registration could be submitted by the seller or purchaser as well.

The right of ownership on agricultural and as well as non-agricultural lands is granted only to citizens of Georgia and to private legal entities registered according to Georgian legislation.

The fee for getting legal (notary) approval on real estate transactions is different in each case and depends on the value of real estate. The fee decreases with the increase of property value and fluctuates within 3-0,05%. The fee should not exceed GEL 10 000.

Transfer of real estate, except new dwelling constructions (new constructions are defined to be dwelling constructions built up within 2 years period) are free from VAT. Tax for transfer of immovable thing makes up 2% of property value.

For the registration of right on ownership on land-lot and related real estate and issue of relevant registration notice, the state registration fee makes up GEL 26.

1.7  The Business Environment in Georgia

Investors face a difficult environment in Georgia starting with the fundamental issue of geopolitical instability.  In addition, several surveys of existing and potential domestic and foreign investors show that the business environment is generally perceived as bureaucratic, non-transparent and corrupt.  Georgia is perceived as having significant obstacles to investment in the areas of taxes and regulations, policy instability/uncertainty and corruption. While the average official and unofficial fees for business procedures and the resources required (staff and time spent) may not be the highest in comparison to other countries, the unpredictability of costs and delays related to administrative procedures combined with uneven implementation and enforcement of regulations increases business risk and results in differential treatment among firms.

As shown in the above Figure, when scores on general constraints to business operations for enterprises in Georgia are compared to regional averages, the constraints are shown to be worse in Georgia for every category except the performance of the judiciary and anti-competitive practices. This substantiates the earlier observation that the business environment is perceived as being much more constrained in Georgia compared to competitors in the region. Further, it emphasizes the need for the Government of Georgia to address these critical constraints in order to help improve the country’s attractiveness for domestic and international investors.

Time and again it has been observed that decrees and programs of reform have been adopted but weakly implemented in the absence of the strong political will necessary to effect change. For example, the State Customs Department (SCD) reform committee was established by Presidential Order to finalize a reform strategy and implement an action plan. To date, little has been done on implementation. The committee rarely meets. Reform has been impeded by competing agendas and frequent changes in SCD leadership due to absence of strong political will to reform the customs department.

Corrupt practices significantly affect the process of doing business in Georgia by increasing the cost and the risk associated with a range of administrative procedures.  From the perspective of foreign investors in particular, facilitation payments or bribes do not simply increase business costs.  They constitute significant risk because in Georgia they are unpredictable and uneven. Also, in all OECD countries bribery constitutes a serious legal offence that can be prosecuted in the home country. Finally, corrupt taxation administration (income tax evasion) and customs procedures (smuggling) result in unfair competition for legitimate, law-abiding enterprises.

In addition, the following fundamental issues have the impact on administrative procedures in Georgia, particularly in the areas of customs and tax administration, licensing, and inspections:

·        Inconsistent implementation of legislation and lack of transparent implementing regulations and procedures. Since 1991, a number of laws have been revised and new laws have been written and promulgated. Although these laws are generally modern and well written, poor implementation and enforcement effectively undermine the intent of the laws. Throughout this report, it is clear that the legal framework and official requirements for most administrative procedures are relatively sound. However, problems and inconsistencies arise in implementation as officials often seek to maintain and exercise discretionary authority and control of administrative procedures.

·        Lack of published information on the various administrative procedures required for business establishment and operation. For example, the official gazette is significantly behind schedule and the business stamp approval procedure is still issued by the police at the cost of 10 GEL. The challenge of publishing and disseminating timely and current information among officials and the public is even greater because of the ongoing changes to existing laws. However, timely publication and dissemination is necessary in order to minimize information gaps and opportunities for corruption.

·        Absence of effective mechanisms for holding public officials accountable. In principle, the Administrative Code and the Civil Code include provisions on the conduct and accountability of public officials. However, in practice these provisions are not enforced. Efforts to introduce and implement codes of conduct for taxation and customs officials have had limited effect to date.

·        Absence of effective appeals mechanisms and the inadequate capacity of the courts. The Administrative Code provides for the public’s right to be heard in protesting or seeking clarification on the actions of most government agencies. However, there is no provision for an independent or autonomous arbiter to provide recourse. This function is apparently to be carried out by the courts. However, the integrity of the courts is often suspected and the capacity of the courts to address these issues is limited.

1.8  Institutional Arrangements

1.3.1        Securities Industry

The institutional structure of the securities industry includes the following market participants: reporting companies (i.e. the private companies whose shares are traded at Georgian Stock Exchange), securities brokerage companies, share registrars, clearing banks, Georgian Central Securities Depository (GCSD) and Georgian Stock Exchange (GSE). The overall supervision is carried out by the National Securities Commission of Georgia (NSCG).  The rights of the securities market participants are protected by the Georgian Securities Industry Association (GSIA). The structure of Georgian Stock Market is presented in Fig. 1.3.1.1:

Fig. 1.3.1.1. The Structure of Georgian Stock Market

2.    Society

2.1  Poverty issues

Poverty Trends. The relatively slow rebound from the economic collapse after independence has led to a severe decline in welfare.  Georgia’s annual income per capita is about 56 percent below the pre-independence level, unemployment rates are high (16 percent in 2001) and many Georgians are underemployed.  In the circumstances, poverty, vulnerability and inequality have all increased over the period.  Georgia clearly needs to achieve and sustain higher economic growth rates to improve living conditions.  Given the small size of the domestic market, this can be achieved only through a stronger expansion in export activities, especially of those in which Georgia has a comparative advantage and the potential to generate new job opportunities, such as agro-processing.

Poverty Profile.  Strengthened economic performance resulted in an reduction of poverty in the mid 1990s.  However, Georgia’s growth rate slowed considerably between 1998 and 2000, and consequently inequality and poverty increased as measured by any of several methodologies increased (see Table 2.1.1).  Growth was affected by a number of shocks, including the 1998 Russian crisis, severe droughts in 1998 and 2000, and the increase in the price of energy imports in 2000.  These problems were compounded by internal and external political instability.  Growth recovered in 2001-02, leading to a slight reduction in overall poverty.

Table 2.1.1. Change in poverty in Georgia between 1997 and 2002