Expanded summary

The work provides analysis the exemptions defined by the Law of Georgia on the Development of High Mountain Regions and evaluates their potential role in developing the field of agriculture. The case study method was used in the research process. Cases of primary production and processing of agricultural products are discussed, on the basis of it the additional to Tax Code exemptions provided by the Law of Georgia on the Development of High Mountain Regions were revealed.

The need of special policies for the development of high mountain regions is important due to the peculiarity of mountainous areas’ geographical, climatic, economic, and natural resource potential. The above characteristics of the mountains, as well as for living and economic activities, differ significantly from the non-mountain areas. According to the 2014 census of Georgia's population, the number of residents in mountainous regions decreased by 30% compared to 2002.

The migration of the population is resulted by objective factors such as: small holdings; land fragmentation and reduced fertility; climate change and natural disasters; unsustainable use of resources; poor condition of infrastructure; difficulties related to food production; low access to public and private sector services; unattractive environment for business development etc. Economic development opportunities in the mountain areas are limited compared to the non-mountain areas that requires special policy elaboration to support the development of high mountain regions.

Only 22% of the population has remunerative work in high mountainous regions of Georgia. The main source of income for the rest part of the population is agricultural activities. Despite the fact that almost 80% of the high mountain area population is self-employed, the food security level in the mountainous regions of Georgia is lower than the country’s average.

In most mountainous settlements majority of the basic food products either are not produced at all, or production quantity isn’t sufficient, so people consume products produced in non-mountain regions or imported from foreign countries. Taking into consideration the above mentioned, it is of particular importance to elaborate and implement special state policy for promoting economic activity in the high-mountain areas. Georgia’s mountainous population’s troubles in regard of food security have to become one of the top priorities on the government’s agenda. The necessity of imposing benefits for ensuring socioeconomic progress of high mountainous regions is defined by Article 31 of the Constitution of Georgia on the basis of which the Law of Georgia on Development of Mountainous Regions was developed.

Analysis, synthesis, comparison and case study methods were used during the research process. Based on case study, the effectiveness of state policy for two directions of agriculture (primary production and processing) for which the quality of impact factors and development opportunities are different, were evaluated. In order to assess the efficiency of Georgia's state policy, unstructured in-depth interviews with regional development experts were conducted. 

Law of Georgia on the Development of High Mountain Regions establishes tax privileges for business entities which, in accordance with the legislation of Georgia, have been granted the status of high mountainous settlement enterprise. Tax privilege is an important stimulating tool for business, but their effect is significantly limited. In order to evaluate its current effectiveness two cases were studied: potato production and potato chips production. Tax privileges established by the Tax Code of Georgia and by the Law of Georgia on the Development of High Mountain Regions were compared.

If the farmer is engaged in primary agricultural production, the Law of Georgia on the Development of High Mountain Regions provides additional exemption from the real property tax. Land cultivation in the mountainous region is relatively difficult and needs higher expenditures. Exemption from the real property tax allows the farmer to reduce the weaknesses of the competitiveness caused by the environmental conditions. In addition, it should be mentioned that the property tax is not a particularly heavy burden for business sector. Hence, the established exemptions cannot significantly stimulate agricultural development, though it reduces the tax burden and slightly promotes the activities of already established farms.

High mountainous settlement enterprise, which process potato and produce chips can enjoy tax privileges and exempt from taxes that should stimulate the establishment of processing enterprises. In fact, since the articles of Mountain Law entered into force no new processing enterprise was created in high mountainous settlements. Consequently, the question arises: if such tax privileges stimulate the entrepreneur to invest in the processing enterprise, why did not one entrepreneur have such incentive yet? The answer is clear when we discuss operational and investment issues. In particular, whether  the  raw materials to be processed are available, what are the costs of the raw materials transportation to the enterprise, whether transportation without losses is possible, whether the required number of workers of relevant qualifications is available, what are the costs of products delivery to the market etc.

Benefits provided by the Mountain Law are mainly focused on creating better conditions for the population by offering social packages, which has only a short-term effect. The analysis showed that the tax exemptions provided by the law have insignificant effect on economic development, provides relief of the tax burden of the entrepreneurs rather than stimulation of commencement of the new business activity.

The effectiveness of tax privileges is minimal in case of primary production in agriculture, while the main problem for the field development is low yield and productivity on primary level.

Due to the scarcity of raw material base in high mountainous regions of Georgia, establishing processing enterprises is not attractive for investors, as well as additional benefits provided by the Mountain Law are useless. The main reasons for the inefficiency of these benefits are considered in the article.

The development policy of high mountainous regions is assessed as ineffective, not sustainable in the long term and not oriented on economic development. The necessity of improvement of the Mountain Law and policy instruments is revealed.