INCOME TAX AS A FISCAL INSTRUMENT AND ITS IMPACT ON THE SOCIAL ENVIRONMENT

Vazha Verulidze

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

Professor,Batumi Shota Rustaveli State University

Georgia, Batumi

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

Ekaterine Shainidze

E-mail: ekaterine.shainidze@bsu.edu.ge

Associate Professor, Batumi Shota Rustaveli State University

Georgia, Batumi

https://orcid.org/0000-0002-3612-1790

Abstract: Income tax is one of the important sources of the formation of the country's budget revenues. In Georgia, the most significant part of the state budget revenues (approximately 28%) is mobilized through this tax. In addition, it creates approximately 85% of the budget revenues of the autonomous republic. The fiscal forecast in relation to income tax is always fulfilled, therefore, it is a stable source of revenue for the country's budget.

Income tax is an important fiscal instrument in Georgia, however, in the context of the Association Agreement signed with the European Union, it is also important to study its impact on the social environment, since in most of the European Union countries, income tax is progressive, there is a tax-free minimum and the tax burden is different for high and low income employed persons. Therefore, in this regard, the following circumstances should be taken into account using the example of Georgia:

- The proportional income tax rate places highincome and lowincome taxpayers under an unequal tax burden;

- In order to avoid the high tax burden, lowincome taxpayers resort to employment without registering as taxpayers and contribute to the growth of the shadow economy;

- Funds mobilized in the form of income tax participate in the financing of important state programs in the areas of education, healthcare and social protection, thereby having a positive impact on the social situation of the population.

Thus, the current income tax mechanism in Georgia increases social inequality, stimulates low-income groups of the population to hide their income and, accordingly, avoid paying taxes, which somewhat limits the possibility of increasing the positive impact of this tax on the social environment.

It is important to develop an effective tax policy in order to ensure the positive impact of income tax on the social environment.

Keywords: income tax, fiscal instrument, social environment.

JEL classification: H2, H3, K34, E62.