THE ROLE OF TAX POLICY IN THE DEVELOPMENT OF INNOVATIVE ECONOMY

Vazha Verulidze

E-mail: vazha.verulidze@bsu.edu.ge

Professor of Batumi Shota Rustaveli State University

Batumi, Georgia

https://orcid.org/0000-0003-1752-8955

Abstract: This paper presents the role of the innovative economy, typical for the modern world, against the background of the global economy and the challenges existing in conditions of fierce competition, and tax mechanisms for stimulating innovation activity in Georgia.

From the point of view of maintaining sustainable development of the economy, the stimulation of innovation activities by the state has acquired a special role. As the experience of countries with developed economies shows, stimulating an innovative economy can be result-oriented only if the regulatory mechanisms are used by the state in a coordinated manner, namely, both financial and credit and tax mechanisms will operate simultaneously, since only tax mechanism, despite its important place, cannot provide motivation for entrepreneurial entities to introduce innovations in products or services.

Promoting innovation is important for achieving competitive advantages and long-term development of strategic industries, therefore state support for innovation is especially relevant for developing countries.

The paper evaluates the tax policy instruments directly relating to the stimulation of innovative activity and successfully used in both developed and developing countries, reviews the norms supporting innovative activity in the tax legislation of Georgia, namely, the scientific-research, design and development service expenses related to the earning of gross income subject to deduction and investment tax credit, i.e. accelerated depreciation reducing the cost of purchasing new equipment. 

In the study process, attention is focused on the extent to which the benefits related to the promotion of innovations provided by the tax legislation affect the activities of entrepreneurial entities. As a result of the analysis of relevant indicators, it is substantiated that the modernization of certain sectors of the economy is proceeding at a slow pace, which indicates the insufficient effectiveness of tax norms introduced to stimulate the development of an innovative economy.

In the current situation, when the tax legislation cannot properly provide stimulation of the innovative development of the economy and in this way gain a competitive advantage by the entrepreneurial entities, both in the domestic and international markets, it is appropriate to refine it for the accelerated modernization and development of the economic sectors.

The paper presents conclusions and recommendations on measures to be implemented by the state, which will promote the stimulation and development of innovative activities of entrepreneurial entities.