As industry and construction; less than 25 employees

As we
know, the current circumstance in Azerbaijan is not so desirable, a plenty of
workplaces have closed, inflation has risen, interest rates have risen and so
on. It is obvious that in this kind of situation, majority of entrepreneurs
become reluctant to carry on their businesses and not willing to set up a new
business, which is one of the worst thing for the country’s economy.
Therefore, several reforms are being tried by government in order to
stimulate entrepreneurs, such as some tax exemptions to them, etc. At the
beginning I would like to explain who are small entrepreneurs? The new
edition of the criteria for classification of small entrepreneurship subjects
was accepted by the decision of the Republic of Azerbaijan’s Cabinet dated
December, 2009. According to this decision, “small businesses have less than
50 employees and 500,000 AZN annual turnover in industry and construction;
less than 25 employees and 250,000 AZN annual turnover in agriculture; less
than 15 employees and 1,000,000 AZN in wholesale trade annual turnover.
Moreover it is better to mention the significance of small entrepreneurships
in an economy. If we look through several developed countries, we will see
that the impacts of small entrepreneurs on the GDP is higher that 25-30 %,
while in Azerbaijan this statistic is much lower in comparison with such
countries. By stimulating them, the number of workplaces will go up and
consequently, the well-being of society will be higher which must be the
first objective of each country. In this letter I tried to emphasize how to
prosper economic activities by the help of small entrepreneurs which is a
win-win situation for entrepreneurs as well as the economy. The first factor
that I want to emphasize is the Prime rate of the Central Bank of Azerbaijan
Republic. If we look through at the prime rate of Central Bank of Azerbaijan,
we can see that it was 9.5 % in August 2016 and now it has been increased to
15 % due to the inflation which is approximately 14 % now. We know this as a
rule that, when inflation rate is high, Central Bank always attempts to
increase the prime rate in order to obtain much money from the economy. Let
us discuss how it actually affects to economy. If any commercial bank takes
this money from Central Bank with 15 % they are going to add at least 8-10 %
to make profit. It means that if an entrepreneur wants to set up a new
business 40.000 AZN and does not have adequate money to do this, he needs to
make credit and later, he will have to pay 10.000 AZN interest. So a new
entrepreneur will not be willing to get credit with such a huge interest rate
from Commercial banks whatsoever. It is like a chain; Central banks increases
prime rate to 15 % ; Commercial banks cater this money to its customers with
25 % ; small entrepreneurs do not make loans; as a result Central Bank’s
policy does not work and inflation rate does not change. There are 2 ways to
solve this problem: First one is that Commercial banks may decrease this
rate, it means they had better add 3-4 % to the prime rate that makes roughly
18 % for entrepreneurs. This policy is also applicable from another
perspective; if we have a look to the interest rates for term deposits, we
will see that the interest rate is low, roughly 8-12 %. It means that they
are able to decrease their interest rates. As a result rather than high price
and low demand, they can implement low price and high demand which is pretty
good situation for small entrepreneurships. The second way to solve this
problem is, Central bank can charge low Prime rate although there is high
inflation. By doing this, they can get an abundant of money from the economy.
This also means to shift from high Prime rate and low demand by commercial
banks to low Prime rate and high demand. The second factor that affects to
the small entrepreneurship related to the Banking sector of our country as
well. We know that people and entrepreneurs in Azerbaijan are suffering from
cash, sometimes they tend not to make credits because of the risk. If we analyze
the Islamic Banking sector, we will see that most of the times they do not
require extra money, they just want to have some shares on their business.
This is my point of view that, this can work now in Azerbaijan, they can be
an owner of a reliable and promising business. Obviously, if they implement
this policy, they will be much more wary toward entrepreneurs as well as
their businesses. We know that all problems that we encountered is directly
related to oil prices. Therefore, now we have got to find some ways in order
to export more goods to other countries. If we implement this, we will get
more dollars, which is desirable for our economy. In addition to this, we can
stimulate small entrepreneurship as well. So, the third factor that government
can do is to stimulate entrepreneurs to export goods to other countries. In
order to achieve this, government can subsidize the entrepreneurs who export
goods. Another way might be to deduct fewer taxes from such entrepreneurs. If
an entrepreneur exports more, they had better pay less taxes to government.
This policy has effects on several developed and developing countries, such
as Turkey, Ukraine, etc. I can obtain another way to stimulate entrepreneurs
from previous factor. In order to increase exported goods, our government can
simplify the rules for imported goods. The reason is why I suggest this
factor is that most exported goods’ raw materials are being imported from
Russia, Turkey, etc. If our government simplifies rules and decreases percentages
for imported goods, the competition will be tougher than before, so the
prices will go down and small entrepreneurs will be more willing to produce
goods and export them to other countries. Another factor that I want to
mention is rent prices according to the tax code of the Republic of
Azerbaijan. According to that code, if someone gives his own land or place
for the purpose of rent to another person with lower than the market price,
tax must be deducted according to the market price. Actually I think this
article was accepted to deal with defrauders, but it is also against to being
competitive. My offer is instead of deducting based on full market price, it
had better be 70-80 % of market price. It will enable owners to become more
competitive in economy. The last factor that should be emphasized is related
to simplified taxes. The certain amount for simplified tax payers is 4 % for
the region of Baku, and 2 % for the rest regions. If we go into detail, we
will see that the first reason why they are not the same is related to
stimulate taxpayers of regions. My point of view is that in order to
stimulate small entrepreneurs in Azerbaijan, the simplified tax must be
decreased to 2 % for people who are acting in Baku. At the end I can say that
our government is really trying to stimulate them. They have been
implementing a lot of policies in order to stimulate them, for instance we
can see this goal in the Concept of Development in Azerbaijan 2020: LOOK INTO
THE FUTURE”. They have also exempted entrepreneurs who are dealing with
agriculture and so on.