Georgia Proves Better Tax Management Can Raise Revenue Without Higher Rates

Georgia increased tax revenue by up to 0.7 percent of GDP not by raising tax rates, but by strengthening oversight of its largest firms through a re-established Large Taxpayer Office. The reform improved compliance and reporting, proving that smarter tax administration can significantly boost government revenue at low cost.

When governments need more money, they usually raise taxes. But Georgia tried something different. Instead of changing tax rates, it improved the way taxes were managed. A new study by researchers from the International Monetary Fund’s Fiscal Affairs Department and the Georgia Revenue Service shows that this administrative reform delivered striking results.

In 2021, Georgia re-established its Large Taxpayer Office, a specialized unit that closely monitors the country’s biggest firms. The reform did not change corporate income tax, VAT or personal income tax rates. Instead, it focused on better oversight, data analysis and direct engagement with large companies. Within three years, the change increased tax revenue by between 0.4 and 0.7 percent of GDP annually.

Why Focus on Large Taxpayers?

In most countries, a small number of firms generate a large share of total tax revenue. Monitoring these firms carefully can therefore have an outsized impact on public finances. Georgia’s Large Taxpayer Office, or LTO, initially covered 203 of the country’s biggest companies. These firms accounted for nearly half of value-added tax collections and about one quarter of overall government revenue.

The LTO model is not new. Many countries use similar units to supervise major taxpayers. But Georgia’s case is important because it provides clear evidence of how much difference such an office can make. The country had dismantled its earlier LTO in 2010. For more than a decade, oversight of large firms was fragmented. The 2021 reform marked a return to focused supervision.

In 2024, the government expanded the LTO by raising eligibility thresholds and adding more firms, bringing the total to 264 companies. This expansion allowed researchers to test whether the results would continue.

More Revenue Without Raising Rates

The results were impressive. Firms assigned to the LTO increased their reported annual tax payments by about 1.4 million GEL per company on average. When added together, this meant hundreds of millions of GEL in extra revenue each year.

Most of the gains came from VAT and withholding taxes, while corporate profit tax also increased but by a smaller amount. After the 2024 expansion, the revenue impact became even stronger, pushing the annual gain closer to 0.7 percent of GDP.

What makes this remarkable is that tax rates did not change. Corporate income tax remained at 15 percent for most firms. VAT stayed at 18 percent. The government simply improved how it monitored and supported compliance among its largest taxpayers.

Better Compliance, Smarter Enforcement

The study shows that the reform worked not by increasing audits but by making enforcement smarter. In fact, the likelihood of a traditional audit fell after firms were placed under the LTO. Yet tax payments went up.

Why? Because firms began reporting more accurately from the start. Much of the additional revenue appeared at the initial filing stage rather than after corrections. Companies seemed to respond to closer oversight and clearer communication by declaring their liabilities upfront.

The LTO combined monitoring with service. Dedicated officers worked directly with firms, helping clarify rules and reduce mistakes. At the same time, data-driven risk analysis ensured that enforcement actions targeted higher-risk cases. This combination of deterrence and support encouraged voluntary compliance.

When new firms were added to the LTO in 2024, they showed immediate jumps in reported tax payments. Firms that remained under LTO oversight continued to show strong compliance. Those who exited the LTO saw some weakening in reporting, especially outside VAT, confirming that the oversight itself made a difference.

A Cost-Effective Boost to State Capacity

The reform was also highly cost-effective. The Large Taxpayer Office operates with a relatively small staff. Its annual operating costs represent only a small fraction of the additional revenue collected. In other words, the return on investment was substantial.

The impact was strongest in sectors where transactions are easier to track, such as utilities, transportation and information services. Industries with more room for income shifting showed smaller gains. This highlights the importance of tailoring enforcement strategies to different parts of the economy.

For countries facing rising debt and limited fiscal space, Georgia’s experience offers an important lesson. Strengthening tax administration can deliver meaningful revenue gains without raising tax rates. By focusing on large taxpayers, using better data and combining enforcement with service, governments can improve compliance and expand fiscal capacity.