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Former Soviet Republic of Georgia To Become IT Tax Haven
A few days ago we noted how Ukraine is driving out its software freelancers with the threat of onerous taxation. Now comes news that another former Soviet republic, Georgia, will become a tax-free zone for IT companies. It might be the Google translation, but it seems that officials there are somewhat worried about how to categorize the IT segment: "[T]he main difficulty ... is to determine which organization is the IT company, and what is not: 'While from a formal point of view it is impossible to distinguish between software developers from the oil.'"
Where'd you hear all that bullshit from? Some salesman for an Indian outsourcing firm?
For every outsourced project I've worked on, the cost has been $X to develop the software in some foreign shithole, plus another $Y to have a bunch of Westerners fix it up. The sum of $X and $Y always far exceeds the cost of getting the software written fully in a Western nation. Why is that? Because most of the work done by the foreigners has to be thrown out, it's that bad. So you end up getting Westerners to rewrite virtually all of it, anyways. Except in addition to paying for the software itself to be created, you're paying for the Western developers to analyze the shit put together in the foreign nation, and to determine that it's complete shit that needs to be thrown out.
Sure, the cheap shoes you bought that were manufactured in China might not last as long as those made in America, but at least they'll generally do their function properly until they break. Software isn't like other manufactured goods, however. Generally, software works or it doesn't. There is no middle ground. There is no such thing as "lower quality code". There is either "working code", or there is "non-working code". You only get "non-working code" when you deal with outsourcing firms.
It's not all bad. They have very nice wine.
When you're afraid to download music illegally in your own home, then the terrorists have won!
India is hardly a zero-tax country; likewise China and most of the Middle East. Low tax is nice; zero tax is great. Georgia also has an abundance of English speakers, unlike most of Asia. It has a large population of computer scientists and engineers, unlike Africa. And it's geographically close to the EU.
Browsing at +1 - no ACs, I ignore their posts. So refreshing!
The additional cost of code review for outsourced work also doesn't cover the cost of giving away your source code for free. That outsourced company also has a free copy of your code that they can now incorporate in other projects and on sell. Plus tech workers are well informed workers, underpaid third world tech workers, know full well they are dramatically underpaid third world tech workers, this does not put them in the right frame of mind for declaring and cleaning up all possibly exploitable security faults.
Georgia as a country, home of the Russians mafia for generations with statues of Joe Stalin at city centres still celebrated as hero to this day, perhaps not the most tech secure consideration. Sometimes cheap just ain't worth it. Outsourcing coding and data input to countries with a bad track record for corruption is really crazy. Alternative tax cheat, set up software company in Gerogia, it out sources all of it's code back to your local headquarters, pays the cost price, then adds in all the mark up before selling it back to you at your zero profit "heh, heh" retail price, if you really desperate to cheat that is about the only safe way to do it with Georgia (any country that doesn't toss out a tie chewing president http://www.youtube.com/watch?v=syKMsDS2OzE on his butt has got to be too cracked to deal with).
Chaos - everything, everywhere, everywhen
Does anyone know what special benefits Georgia offers beyond this abscence of tax?
Georgia went through a couple of civil wars (and a few presidents) since the USSR dissolved. Georgia initiated another war recently, and successfully lost territory this way. The president of Georgia is believed to be insane; some say that he personally killed one of his political opponents. He is currently the black sheep among presidents in the region. Russian officials won't tell him the time of the day. There are frequent demonstrations for and against the president. The country is poor (but that's pretty easy to conclude by now.) The local language is pretty unique. The country is split into several tribes who aren't particularly in love with each other (that's what caused the loss of territories in the recent war.) Many people live in mountain villages, with minimum communications. Georgia was best known in the USSR for its agricultural goods - wine, peaches and other stuff that requires warm climate. There are probably quite a few programmers in cities, though.
Georgia is #11 in the "Ease of Doing Business Index", and generally has very lax economic regulation across the board. There have been some sweeping social and political reforms since 2004, and the guys at helm are die-hard economic liberals, with all that implies - very little bureaucracy, and tendency of government to keep its nose out of business affairs for as long as all taxes are paid.
I'd say that, if you're looking for a libertarian paradise, it's one of the places closest to that. How long that will last is a good question, though - there have been some claims recently that Georgian economic growth has all signs of an investment bubble, and it's about to burst.
Georgia also has an abundance of English speakers, unlike most of Asia. It has a large population of computer scientists and engineers, unlike Africa.
You are speaking about a country of four million people. The capital has a population of less than 1.5 million, and the regions outside the capital are largely uninteresting for IT investment. The abundance of English speakers and large population of engineers need to be seen in relation to that.
English in Georgia is largely limited to the young generation, people over 35 are more likely to speak Russian than English, even though they probably won't like to. I guess you could find more English speakers in many Asian cities than in Georgia, depending on what constitutes "Asia" for you. India, Bangladesh and Pakistan alone have something like a few hundred times the number of English speakers Georgia does. Knowledge also does not mean good knowledge. People already complain about the English of call centers in Bangalore, but I don't see significantly better English in Georgia on a broad scale.
And it's geographically close to the EU.
This means practically nothing. For IT work the Internet is the medium of choice anyway. For what it's worth, Kosovo is even closer to Europe, yet I don't see European IT outsourcing to Kosovo happening on a large scale. Georgia is also politically unstable. They got into a war with Russia recently where an EU commission later found that it was primarily the Georgians who started it. The Georgians may fly the EU flag outside government buildings on their own initiative and declare it their goal to join the EU and NATO, but both the EU and NATO are growing increasingly skeptical of the country. Politically they're further away from the EU than they ever were.
Political culture can be irrational in Georgia. It's formally a democracy, but changes of government have never resulted from elections. Public culture can be fairly racist; in 1991 the country was founded amindst slogans such as "Georgia for Georgians", which got them into several civil wars and cost them significant territories inhabited by ethnic minorities, which would now rather see themselves annexed by Russia than governed by Georgia (not that those minorities are necessarily much better in terms of interethnic relations). Infrastructure is problematic outside the cities, too. There are entire regions that don't have electricity (or that had them until 1992, when someone dismantled and stole 70km of overland electricity line for the copper).
Personally I actually like the country, make no mistake. I have been there, I have friends there, I can read Georgian if I have to. But it's not a place I'd recommend for major IT investments.
As a state gets corrupt, its laws multiply; the most corrupt states have the most numerous laws. (Tacitus, Annales 3:27)
> payroll taxes alone can be an extra 10% on the top
I have no idea where you live but 10% on the top as tax is a sweet deal. For example, in Estonia, for every dollar you pay as salary, you have to pay additional 69 cents for taxes. No wonder, this country can’t compete any more. Oh, I they have a 20% sales tax too.
So, you waste 16 900 to pay someone 10 000 and they will pay additional 2000 for sales tax on everything they buy (food included).
I guess you could find more English speakers in many Asian cities than in Georgia, depending on what constitutes "Asia" for you.
That's silly. It's not about the number, it's about the percentage.
Actually it's about both. China probably has a lower percentage of English speakers than Georgia, but if you have more people enrolled into universities than Georgia has citizens, the raw number probably does make a difference.
Not to mention that there is a fair number of countries in Asia where the percentage is higher, too.
If you walk into a store, what's the chance that the guy behind the counter speaks English?
In Georgia, somewhat OK if you look at banks and tech stores, not great if you look at grocery stores or bus drivers.
If you hire a programmer without specifying a specific language to speak, what's the chance they speak English?
Better than the guy in the store, and probably better than in Turkmenistan or so, but not higher than in India, for example.
By your statement, New Zealand is a bad place for English speakers to do business because the whole country has less than 5 million English speakers, and you'll find more than that in France.
I was answering to a statement that there is an "abundance of English speakers", compared to other nations in Asia. There, the raw numbers do play a role. It's much easier to find a qualified English-speaking Indian than a Georgian.
As a state gets corrupt, its laws multiply; the most corrupt states have the most numerous laws. (Tacitus, Annales 3:27)
At first Georgia is fast gworing with economy, out of corruption, ZERO mafia (some in here sad that russian mafia is in georgia, i guess georgian mafia is in russia :) ):
From 2003 to 2010, after rose revolution georgia get:
1. GDP grow from 12%
2. Industry income grow for a 1200%
3. Building industry product grow for a 800%
4. Overall grow of trading 600%
5. Communication sector grow - 400%
6. External turnover grow - 900%
7. Import grow - 900%
8. Export grow - 500%
9. xternal debt rose by only 10%, in 2003 was 600 of common income, now is less
10. Average salary grow - 600%
11. Unempoyment grow - 14% from 12%, even after 2008
12. Corruption ranking - from 133th (near russia) to 58th
Literacy Level - 100% (only one and #1 in ranking)
Ease of doing business Ranking:
2009 rank - 16th
2010 rank - 11th
1. Infrastructure
2. Workforce availability
3. Culture of working
#4. Political stability
5. Religious stability
6. Social stability
7. Corruption
8. Legal system
Georgia is missing only political stability because of attacks of instable neighbours, but according to US military bases establishment - now it should be ok. Regarding others - Georgia is trying to get very close to the EU, so country is changing its legal system and standarts according to EU requests.
Mentality - out of USSR, hating USSR, hating Staling, working, learning, management, clean, literal, educated, traditionally guests are best friends, beer :)
IT/telecom access technology grow (@home result you can feel):
Y2002:
Dial-up, 1 hour = ca. 0,4 USD, 56k
Mobile: 2G, ca. 0,2 USD per minute
Y2010: :)
ADSL/ADSL2+ (one of the first countries implemented, available even in villages) = unlimited, 50 USD per month
Fiber to the home (available almost everywhere in big cities) = unlimited traffic, 100mbps to gbps local connection, 10bmps - 100mbps global, 50 USD per month
4G WiMax Mobile = unlimited traffic & speed, 50 USD per month, closing due other technology evolution
3.75G EV-DO CDMA Mobile = unlimited traffic, up to 3mbps speed, 30 USD per month, ca 70% coverage
3.75G UMTS Mobile = ca 50% coverage, 100% in cities, 0,02-0,3 USD per MB
2.5G GSM EDGE = ca 90% coverage (available everywhere), 0,02-0,3 USD per MB
Dialup - not available
Someone said something for labor cost, ok, if you believe that IT guy cost is big in georgia (actually its both - there is a scaled price range), then you can get additional workers from neighbour countries like armenia and azerbaijan, or even take indian guys in there...
Some ad videos:
http://www.youtube.com/watch?v=ynihqPoG0Wk
Capital:
http://www.tbilisi.gov.ge/index.php?lang_id=ENG&sec_id=1
http://www.youtube.com/watch?v=ax5xPZ5BZOA
Batumi (second growing city), was in communistic ruines, now growing:
http://www.youtube.com/watch?v=3HOa15Inzr0
Banking grow - oh, don't tell me about that, you can even compare to EU, especially in social needs like searching for ATM, absolutely no problem
"It feels like I'm at the Zoo when reading this thread - I'm frightened, but it's interesting" (c)
Tax breaks for companies shipping operations (jobs) off-shore began in earnest during the Regan years. NAFTA pretty much sealed the deal.
Allowing the Wal-Marts of the world to buy from China and sell here, this siphoning dollars directly out of the U.S. economy, and all the while enjoying generous tax breaks for doing so, is the problem.
I'm sure you know this and just got carried away with a rant, but just to make sure... NAFTA has NO effect on companies purchasing from China. China's artificially holding down the exchange rate on their currency, that's another topic. And out of control for US administrations.
NAFTA's intended purpose was to open new markets for goods between Canada, US, and Mexico. Mexico hasn't been the success that was hoped because the overall standard of living hasn't increased enough to provide a large market for American goods. I worked for over a decade in manufacturing, and the companies I dealt with generally had manufacturing in all three countries. There are other factors, some cultural, that discouraged closing down a US plant and moving it south simply because the labor or taxes are cheaper. (BTW, off shoring generally has more to do with labor costs than tax costs.) There wasn't a big push to off shore until plants started opening in India and China.
China also extends their markets by forcing companies that want to operate in China to have a Chinese partner. With Chinese markets booming, manufacturers want to enter those market with local plants. The choice then becomes operating multiple plants, or consolidate them with in the newly built facility in China and export back to your other markets.
Another day, another update to a Google android app.