Azərbaycan respublikasi təHSİl naziRLİYİ azərbaycan döVLƏT İQTİsad universiteti beynəlxalq magistratura və doktorantura məRKƏZİ

The concept, principles of construction and the main functions of the tax system of Azerbaijan.
The concept, principles of construction and the main functions of the tax system of Azerbaijan.
The basic taxation principles, applied nowadays by nearly each and every state worldwide, were formed back in 1776 by Adam Smith. And throughout that period, there have been debates as to whether taxes are necessary or not, how important they are and whether it’s worth paying them.
The development of history made it clear that not all citizens can secure their own safety, pay for education and medical treatment, but the country’s condition largely depends on the well-being of all of its citizens, rather than on individual characters. Roughly speaking, tax is what we pay to the state for our protection against outer enemies and crime, for provision of access to healthcare and education.
Although, under a classical market theory, the state shouldn’t intervene in the sphere where the marker exists, but then a kind of ‘law of the jungle’ would have been in effect in the community and those, unable to earn enough money, would have roughly died from hunger and diseases.
Tax levy terms and procedure and defined in the Tax Code. The procedure is based on certain principles stipulated exactly in the Tax Code. In his book- ‘Wealth of Nations’, Adam Smith laid down the following 4 basic principles (canons) of taxation:

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  Principle (canon) of equality, which implies general levying and equal distribution of tax between the citizens in proportion to their incomes;List item 2
  
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  Principle (canon) of certainty implies that a taxpayer should be certain of and know in advance the amount of tax and its time of payment;
  
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  Principle (canon) of convenience implies that tax should be levied at a time and in a manner which is most convenient for the contributor to pay it;
  
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  Principle (canon) of economy, that provides for reduction of tax collection expenses. In other words, expenses for collection of tax itself shouldn’t exceed certain rate of the income therefrom. According to some studies, 7% rate is regarded as normal.
  

There are five main functions of taxation: fiscal, redistributory, regulating, controlling, and promoting.
The main function of taxation is the fiscal one. It is through fiscality that taxes play their role in the formation of the state budget necessary for the realization of national and holistic state programmes. The fiscal function provides for the achievement of the main social goal of taxation — the formation of the state’s financial resources necessary for executing the role of the latter (defense, social, environmental protection, etc.)
The allocation function of taxation expresses their essence as a special centralized instrument of allocation relations and consists of the social income redistribution among various groups of citizens: from wealthy to deprived ones, which ultimately provides for the assurance of the social stability of the population.
The regulatory function of taxation was initiated as soon as the state started to take active part in the economic set-up of the society. This function is aimed at achieving specific goals of the taxation policy through the taxation mechanism. Taxation regulation entails three sub-functions:

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  The stimulating sub-function is aimed at the development of special socio-economic processes, and is implemented through a system of allowances, exemptions and preference arrangements. The legislation in force stipulates the stimulation of a number of taxpayer categories such as the owners of small enterprises, the agricultural producers, capital investors, or charities
  
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  The destimulating sub-function inhibits some socio-economic processes through the conscious exaggeration of the taxation burden. As a rule, the effect of this sub-function is related to the introduction of excessive tax rates. These are, for example, the protectionist measures of the state, aimed at supporting local producers through prohibitive import custom duties. It is important to keep in mind, nevertheless, that taxation relations, as any other relations, must replicate continuously. Taxes must be collected today, tomorrow and always. This is why the utilization of the destimulating sub-function should not lead to the weakening of the taxation basis, to suppression, or even to liquidation of the tax source. Such an exaggeration may result in a situation where there will be no income/processes to be taxed
  
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  The replication (regeneration) function is explained as follows: by taxing the utilization of natural resources, roads, mineral and primary resources, the state uses these proceeds in order to regenerate the exploited resources.
  

4) The controlling function of taxation — through taxation, the state controls the financial-economic activity of juridical and natural persons. This also contributes to controlling the sources of income and the directions of spending.

5) The incentive function stipulates special taxation arrangements for a certain group of citizens, who are social achievers (participants in wars, etc.). This function of taxation has a social facet.
Legal regulation of the tax system of Azerbaijan
The Constitution of Azerbaijan Republic, this Code, and those legal standards adopted in compliance herewith, shall comprise the tax legislation of Azerbaijan Republic.
Any article of law adopted on the basis of this Code or for the purposes of its execution shall not contradict with the provisions of this Code.
Should tax legislation contradict any legislation in other areas, with the exception of provision stipulated by Article 2.7. of this Code, the provisions of tax legislation shall apply.
Taxation and tax control issues cannot be included into the legislative acts, other than tax legislation, with the following exceptions:
provisions concerning administrative offences in relation to tax issues, stipulated by the Code of the Azerbaijan Republic for Administrative Offences;
provisions concerning tax crimes included in the Criminal Code of the Azerbaijan Republic;
provisions concerning the priority of tax obligations included in the legislation on bankruptcy and insolvency;
provisions on taxes contained in budget legislation;
provisions governing state maintenance allocation and guarantees on taxes
provisions stipulated by agreements or laws on production sharing, main pipeline and other similar agreements and laws;
provisions stipulated by the legislation on oil and gas operations of export direction and special economic areas.
Should any international treaty to which the Republic of Azerbaijan is a party provide for regulations that differ from those contained in this Code and legislative acts established on taxes, the provisions of said international treaties shall govern.
If international treaty with the intention of avoiding double taxation to which Azerbaijan Republic is the party applied by any person, who is not the resident of the state that entered into such treaty for the purpose of obtaining tax privileges, provisions of article 2.5. of this Code shall not be applied for the purposes of tax privileges to the resident of the state that is the party to such treaty.
If production sharing or main pipeline agreements approved by the legislation before this Code is entered into force or after its enforcement, as well as other laws and agreements of a similar nature, including the legislation on oil and gas, contain provisions that differ from those stipulated by this Code and other legislative acts on taxes then provisions of such agreements and laws shall be applied.
In the event of required changes to the Tax Code of the Azerbaijan in connection with definition of tax policy, tax administration and tax rates within the next year state budget draft, the drafts of these laws to the proper authority of executive power before May 1, and from the side of the proper authority of executive power shall be submitted to the Milli Mejlis of the Azerbaijan Republic no later than by May 15 of current year.