The impact of customs duties on price growth in Azerbaijan: Why is it so high? |
Social and Agora Analytical Collective, a new think tank engaged in economic policy analysis customs published an analysis article on the impact of tariffs on price increases in Azerbaijan and opportunities. The article notes that the most serious problem related to the global economy is the escalation of price increases. The coronavirus pandemic due to the disruption of the supply chain, the increase in energy prices, Russian-Ukrainian war and is still ongoing, along with the challenges posed by climate change. Currently, both in developed and developing countries, it is the highest in recent decades inflation indicators are recorded.
Currently, the level of price increases is high in Azerbaijan. According to the State Statistics Committee, in 2022 january-during September prices Compared to the same period of 2021, it increased by 13.4 percent. Currently registered in the country inflation the indicators even experienced devaluation twice during the year and national it is even higher compared to the period after 2015, when the currency lost its value twice. Due to the increase of budget expenses in Azerbaijan at the end of the year, as a rule in the country in the last months of the year and the first months of the next year inflation becomes faster. In this regard, it can be assumed that the inflation rate will approach 15 percent by the end of the year. This is several times higher than the inflation target of the Central Bank (4±2%, i.e. between 2-6%).
The main part of the population’s expenses food recorded in products rise in price is even higher. According to official figures, at the end of September this year food its products have increased in price by 22.5 percent compared to a year ago. It should be taken into account that, according to official indicators, it accounts for a little more than half of the population’s expenses in Azerbaijan food spent on products. In this regard, 22.5 percent in one direction, which is half of the population’s expenses rise in price of the population social causes a decline in well-being. It should be taken into account that the 22.5 percent inflation rate is the average of about 130 food products. On individual food products that occupy more space in the food ration of the population rise in price is higher.
Agora Analytical Collective believes that the high level of price increases requires governments to review their economic policies in this direction. In this regard, governments, in addition to traditional monetary policy instruments in terms of influencing the price level, also tax and customs has the ability to influence price increases through rates. Reduction of value added tax (VAT), customs tax concessions, etc. are the first steps that come to mind in this direction. However, it seems that these types of steps are implemented in a very limited framework in Azerbaijan.
Customs duties in the countries of the region
Customs duties in the countries of the region
It is known from the “World Tariff Profiles 2022” report published by the World Trade Organization (WTO) that the level of customs duties in Azerbaijan is higher than in the countries of the region. The report states that in 2021 Azerbaijan “simple average most favorable regime” customs tariff was equal to 8.5 percent. For comparison, let us say that from other South Caucasus countries in Georgia this indicator is equal to only 1.4 percent. I mean, To Azerbaijan 6 times lower than In Armenia, the corresponding indicator is 26 percent less than in Azerbaijan – equal to 6.3 percent. At the same time, only 33.7 percent of products in Azerbaijan are exempt from customs duties. The same indicator in Georgia It is equal to 87 percent. That is, the absolute majority of products imported into the country are generally exempt from customs duties.
In terms of influencing the formation of the price of food products village customs duties applied to agricultural products play a more important role. Considering the average indicators for these products, it is clear that in Azerbaijan village customs duties applied to agricultural products are higher. According to the “World Tariff Profiles 2022” report, in 2021 in Azerbaijan village the “simple average most favorable regime” customs tariff applied to agricultural products is equal to 13.9 percent. in Georgia the same figure is 6 percent, and in Armenia it is 8.1 percent. Looking at the price increase of food products in all three countries in the last 1 year, it is known that the indicators recorded in Azerbaijan are higher. So, if at the end of September 2022 food products in Azerbaijan prices compared to the same month last year, it increased by 22.5 percent, while in Georgia, the price of food products rose by 17.6 percent, and in Armenia, by 13.7 percent.
How to change the situation?
It is clear from the presented figures that the average customs duties applied in Azerbaijan are higher than in many neighboring countries. In this regard, Agora Analytical Collective believes that the government can use the reduction of customs duties as a tool to influence the level of price increases. It should also be taken into account that the customs payments collected in recent periods in Azerbaijan are ahead of the forecast indicators. The reason for collecting more customs duties than expected is precisely the increase in prices. From this point of view, even in case of reduction of customs duties, it is possible to follow the forecast indicators related to customs collections.
in 2021 To Azerbaijan the average price increase in imported products was equal to 21.1 percent. According to the investigation of the Chamber of Accounts, 89 percent of the funds collected by the customs authorities were formed due to the payments collected from the areas where price increases were recorded. According to the opinion of the Chamber, Customs Committee 15 percent of the collected funds are due to inflation. Customs Committee 4 of the volume of total customs collections collected last year billion Considering that it is 343 million manats, this means that 651 million manats of these funds were formed only due to price increases. If we take into account that customs collections exceeded the forecast by 443 million manat last year, we can say that the collection of customs collections more than the forecast happened due to the increase in prices and therefore the parallel increase of customs collections.
However, it should also be taken into account that in the present case, even the reduction of customs duties may not have a serious effect on the level of price increases. Because, this type of mechanisms applied by the governments become effective if there is a competitive environment in the market and the participants are forced to adapt to such steps of the government. There are serious problems related to the level of competitive environment in many fields in Azerbaijan. For that reason, Azerbaijan reducing customs duties without developing a competitive environment in the economy can only lead to a reduction in the costs of that limited number of companies. It should be noted that the main purpose of taking such steps is not to enable companies to reduce their costs and earn more income. With an effective customs policy, the government has the opportunity to influence the rising costs of consumers.
For this reason, factors such as the liberalization of economic activity in the country and the creation of equal opportunities for everyone to enter the market are also very important in order to prevent the high inflation currently prevailing in Azerbaijan. In order to create the economic environment we have mentioned, the creation of an effective legislative framework in the country (the adoption of the competition code, ensuring the functioning of the mechanism for filing income declarations by officials, etc.), ensuring the functioning of these laws, property rights and court It is very important to take steps to eliminate existing challenges related to the system, especially to improve access to financial resources of small and medium enterprises.
In this environment of competition, the creation of more favorable conditions for customs duties can lead to a cheaper cost of products imported into the country. Taking all these steps will contribute to the development of the country’s economy, and currently the population social it is very important in terms of solving the problems caused by the price increases that lead to the deterioration of the situation.