Arrests Unsettle Georgian Business Environment

Friday, 29 October, 2010

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Shorena Latatia

Georgia often boasts of its high rating in international business surveys, but lawyers and rights activists say small businessmen are regularly penalised while big companies are helped out by the government.

The country achieved 11th place in the World Bank’s Doing Business 2010 survey, up from 18th place two years ago, and is now aiming for a top-ten position.

Observers are concerned by the October 5 arrest of 55 owners of small businesses by the finance ministry’s investigative department. Some were later freed, but a dozen more were detained subsequently, all on suspicion of forging tax documents.

“You can’t say that every one of the people detained posed a threat that necessitated their arrest,” Giorgi Tsintia of the Association of Young Lawyers of Georgia, who is defending some of the businessmen, said. “They were all initially summoned as witnesses, meaning there was no need for arrests en masse. This all indicates that disproportionate force was used to detain them and that their right to liberty was violated.”

Tsintia was not alone in saying the arrests were disproportionate, given that the businessmen were unlikely to flee, destroy documentation or commit new crimes.

“The tax police should take a more relaxed attitude to small businessmen,” Merab Janiashvili, head of the Association of Young Financiers and Economists, said. “The men arrested on October 5 were made to put up bail of 5,000 lari [2,700 US dollars]. I’m sure most of them won’t want or be able to continue their business activities. The Georgian budget will suffer as a result.”

Critics of government policies on business say smaller companies lost out when a new tax code came in this January, imposing large fines for breaking tax regulations.

“This new code is made for big business. It significantly raises the level of fines, making it even harder for small or medium-sized businesses to exist in Georgia,” Janiashvili said.

Others agree that large companies are favoured at the expense of small-scale entrepreneurs.

The government brushes off allegations that its policies are not even-handed.

President Mikhail Saakashvili has long spoken of improving the business climate and entering the World Bank list of the best places to do business.

“This year we will get into the top ten, along with Singapore, Hong Kong, the United States, Canada, Australia, Norway, New Zealand and Denmark,” he said in a recent interview.

Mikheil Tskhitishvili, a member of the ruling United National Movement who sits on the parliamentary committee for financial and budgetary matters, said the recent arrests related solely to tax issues and should not be seen as an assault on the private sector.

“I think it makes complete sense – to fulfil the budget, we need to levy taxes. For me, someone who hides even a single lari from the authorities is a criminal and must be punished,” he said. “It’s very easy to start up and run a business in Georgia. The key thing is that the level of corruption is so low that it’s virtually non-existent.”

Giorgi Arsenishvili, who chairs parliament’s human rights committee and is also a member of the ruling party, said he was unaware of any case of “mass violations of businessmen’s rights” in recent years.

Opposition politicians like Guram Chakhvadze of the National Democratic Party, who is deputy chair of the parliamentary finance and budget committee, disagreed with such rosy portrayals of the situation.

“In Georgia, there are two tiers of business – elite big business, which is protected by the authorities; and small and medium-sized business, which has to exist under very difficult circumstances.”

“Business environments are assessed according to a number of criteria. Georgia has several positive indicators, but it also has a whole set of problems. It’s obvious we don’t have the kind of business environment that we should have.”

Shorena Latatia works for the Human Rights Centre in Georgia.