Georgia: Corruption Crackdown Makes Waves

Thursday, 4 March, 2004

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Shorena Ratiani

Georgia's new president has, as promised, launched a high-profile fight against corruption, winning strong popular support for a string of arrests.

At the same time, though, some economists have expressed concerns about one of the campaign tactics - a new measure that absolves businessmen for not paying taxes in the past so long as they pay the amount they owe.

Mikheil Saakashvili first rose to prominence in Georgia when, resigning as former president Eduard Shevardnadze's justice minister in 2001, he flourished photographs of expensive houses that he said belonged to corrupt officials.

Now that he is president, many of those old officials are facing trial. A string of well-known figures have been detained, sometimes in highly theatrical fashion. They include the former ministers of energy and transport and the former head of Georgian railways.

Railways boss Akaky Chkaidze, who was dubbed the "chief financier" of the previous regime and was accused of withholding 700,000 laris (more than 300,000 US dollars) in unpaid taxes, decided after last year's Rose Revolution to retire to a hospital in Batumi, the capital of the semi-independent republic of Ajaria, on grounds of ill health.

However, to his surprise and that of the local authorities in Ajaria, a unit of special interior ministry troops snatched Chkaidze in an ambulance and took him to a helicopter bound for Tbilisi. On January 18 he was put in custody for three months awaiting trial. Making the point that no one could take refuge from him, Saakashvili said that he was prepared to order the use of special forces and the air-force if necessary.

Another close Shevardnadze aide, the controversial former governor of Kvemo Kartli Levan Mameladze, acted more promptly and is believed to have fled the country.

Merab Zhordania, the head of Georgia's Football Federation, stands accused of owing unpaid taxes worth up to 20 million dollars. He was detained as he tried to board a flight to Paris on December 12. However, Zhordania has since been freed after paying a fine of 750,000 laris, with the main charges against him still unproven.

The most high-profile target of all was Shevardnadze's son-in-law Gia Jokhtaberidze, head of the mobile phone company Magticom. He was also arrested after allegedly trying to fly to Paris. Paata Shevardnadze, son of the former leader called the arrest "a political persecution against the family of Eduard Shevardnadze, aimed at discrediting Shevardnadze and taking over Magticom. A dictatorship is being set up in Georgia".

The security organs have also started investigating another big Georgian firm, Omega, which is linked to the leader of Ajaria, Aslan Abashidze. Its offices have been sealed and the employees not allowed back to work.

The arrests are extremely popular but some are already worried about the manner in which they have been carried out.

"The judiciary has lost its powers and is completely subordinate to the executive," said parliamentary deputy David Gamkrelidze, who also runs the Aldagi insurance company. "That's dangerous and could lead to an authoritarian regime. The law enforcement agencies can go into any business without any documents, close it and seal it. Business is being intimidated."

The most controversial aspect of the campaign is the new tax amnesty.

"If someone presents a tax declaration by April 1 in which he says he is ready to pay [unpaid taxes], I give my word as president - he will be free of any responsibility for that," Saakashvili said on February 22, before leaving for the United States. "If we need to change the law to do this, we will. I will not revoke my words."

However, when parliament held its last session three days later before being disbanded ahead of the March 28 elections, it had not passed any new legislation on this issue. To confuse things even further, businessmen have not been told how many years of back taxes they have to account for.

"It means that businessmen have to trust the president's words," said economist Nodar Kharazishvili. "If a businessmen declares income he has hidden when there is no law in place, then from the legal point of view he is a criminal and has to be arrested. If they don't arrest him and pardon him instead, it's a legal nonsense."

"I am glad they've declared an amnesty, but I don't know what to do, what declaration to give in and where to send it," said Givi, who runs a supermarket on the edge of Tbilisi. "I don't remember myself what I've earned over the last few years and what I've spent. How will they be able to check if I've written the truth yet? If someone can explain it to me I will be very glad. I'm afraid it's all turning into an April Fool joke. And in the end I think it will all end up as before with the money being stuffed into someone's pocket."

The business community is frightened and confused about the measure, while some say that if rigorously enforced the new initiative could leave them bankrupt.

Economist Giorgy Kvavilashvili said that the "time factor" was very important. Everything was being done in such a hurry that it was likely Georgia would end up with a "practically unfinished draft law with a lot of ambiguous murky points".

The challenge the new administration has set itself is colossal. They want the 2004 budget income to be 34.6 per cent higher than last year - at 1.78 billion lari or 864 million dollars - so as to raise pensions and salaries.

Zurab Zhvania, who is now prime minister, said that because of smuggling and non-payment of taxes, the budget had lost 60 million lari (29 million dollars) from tobacco alone last year and almost 200 million dollars from non-declared oil products.

Zhvania has set himself the goal of reforming the tax code and lowering the tax burden. Fadi Asli, who runs the American Chamber of Commerce in Georgia, believes he has got his priorities wrong. "The government would be better off thinking about improving tax administration and collection," he said. "But this question is directly linked to the level of pay for state officials. If salaries in the state sector don't rise, then tax collection won't go up either."

"The authorities should get down to tax reform first and not pursue businessmen for old sins which are the fault of the tax code," said David Gamkrelidze. "Business should not be sacrificed to an old corrupt system."

Shorena Ratiani is Georgian-language editor of Panorama newspaper.