Transparency initiative annual report

5. EITI REQUIREMENT 5

5.1. Distribution of extractive industry revenues

The revenues and expendutures of the state budget of Azerbaijan Republic for 2015 was approved in the amount of 17.2 billion AZN and 17.8 billion AZN respectively.

Table 25: Revenue and expenses of the state budget 2013-2015 (million manats) ⁹⁰

Revenue	2013	2014	2015
Income tax of physical entities	859.7	980.3	982.5
Profit tax of legal entities	2,374.8	2,302.7	2,211.1
Land tax	33.1	35.4	48.7
Property tax	125.1	141.3	148.2
Value Added Tax	2,710.0	3,119,6	3,454.7
Excise Tax	593.3	797.3	647.8
Royalty Tax	121.5	116.2	116.1
Taxes related with foreign economic activities	675.2	684.7	575.7
Other taxes	161.5	192.7	247.7
Other receipts (including SOFAZ transfer to the state budget)	11,842.1	10,030.4	8,724.3
Total	19,496.3	18,400.6	17,156.8

Expenses	2013	2014	2015
National economy	8,207.5	7,598.7	6,408.9
Education	1,437.7	1,553.9	1,605.1
Culture, art, information and activities not included in other categories	226.6	248.5	236.3
Healthcare	618.9	665.3	708.2
Physical training	48.3	45.5	36.1
Social protection	1,730.9	1,946.8	1,829.6
Social insurance	19.4	24.4	27.6
Science	117.0	124.2	113.2
Court authority, law enforcement agencies	1,049.3	1,103.6	1,105.7
Legislation, executive and governmental authorities	349.3	449.7	430.9
Other payments	5,338.6	4,948.4	5,283.0
Total	19,143.5	18,709.0	17,784.6

During 2015, the amount of receipt from the mining industry to the state budget was 8,7 billion manat. The amount of 8,7 billion manat includes the transfers made by the State Oil Fund of Azerbaijan Republic. The amount transferred from the State Oil Fund of Azerbaijan Republic to the state budget was 8,1 billion AZN in 2015.⁹¹

In accordance with the legislation of the state budget of Azerbaijan Republic for the year 2015, approximately 91,3% of revenue sources are centred around the Baku region. The remaining 8,7% is anticipated to be sourced from the local revenues of other cities and regions. The income is generated from the State Oil Fund, tax income, customs duties, the income from credits and other revenue streams, excluding the income relevant to "Motor Roads" Purpose Budget Fund.
Information on transfers of funds by the PSA contractor companies to the state budget in 2015 has been presented in more details in "Reconciliation of the results" section of the report
In 2015, the flow of the funds to the State Oil Fund amounted to AZN 7,7 ⁹² bln. The Oil Fund's income sources have been formed from Azerbaijan's share of the proceeds from the sale of hydrocarbons, transit fees, bonus payments, acreage payments, revenues from Fund's assets management and income from other sources.
Table 26: The income sources of SOFAZ in 2015 (mln manats) ⁹³

Sources	2013	2014	2015
Proceeds from the sale of profit oil and gas	13,108.0	12,319.8	7,369.6
Revenue from managing the funds	480.6	387.2	335.6
Payments on transit fees	8.1	8.9	11.6
Bonus payments	1.9	13.3	2.1
Acreage fees	1.8	1.7	2.2
Other revenue and receipts	0.08	0.1	-
Total	13,600.4	12,731.0	7,721.1

Table 23:The breakdown of payments of Oil Fund in 2015 (mln manats) ⁹⁴

Sources	2013	2014	2015
Transfers to state budget	11,350.0	9,337.0	8,130.0
Improvement of social conditions of refugees and internally displaced persons	300.0	300.0	150.0
Samur–Apsheron irrigation system	173.9	80.2	90.0
The administrative expenses of Oil Fund	47.5	45.9	27.9
Education of Azerbaijani youth abroad	33.0	33.5	35.5
New Baku-Tbilisi-Kars railway construction project	25.7	57.1	61.5
Financing of the participating interest of the Republic of Azerbiajan on Construction of “Star” Oil Refinery Project in Turkey Republic	372.6	223.5	-
The second phase of operation “Shahdeniz” gas-condensate field	-	40.0	-
Financing of the participating interest of the Republic of Azerbaijan in “South Gas Corridor” projects	-	-	692.9
Total	12,302.7	10,117.2	9,187.8

5.2. Sub-national transfers

Information regarding sub-national transfers was not included in EITI Report for the year ended 2015. This is due to the decision made by EITI Multi Stakeholder Group on 34^th meeting dated 10 December 2014 to eliminate the information which is not relevant to Azerbaijan Republic. ⁹⁵

Azerbaijan Republic is unitary state and therefore it does not have any sub-national transfers. There are local budgets, but they are governed by and accumulated from the centralised budget. All collected duties and taxes are transferred to the single budget. Nakhichevan AR is the only exception as it collects the taxes to its budget and is supported by the central budget at the same time.

5.3. Revenue management and expenditures

In order to ensure the comparison of information at all levels of budget system of the Republic of Azerbaijan, the unified budget classification is applied. The classification of income and expenditure of the budget is the result of grouping of income and expenditure which are included in the budget system.

The structure and composition of the budget classification are determined in accordance with resolution of the Cabinet of Ministers dated 6 October 2004 on “Approval of the unified budget classification”.
According to the resolution, the detailed classification of income sources of the state budget must be presented along with projects related to annual draft law on the budget within the budget package for the discussions in Milli Majlis.
The classification includes all types of direct payments from extractive industry to the budget (profit tax of the contracting and subcontarcting companies operating within PSA framework, income tax of the hired employees of contracting and subcontracting companies operating within PSA framework); the amount of transfer to SOFAZ is indicated as well.⁹⁶
The state budget is formed of all types of income and expenses which are related to the government agencies and is confirmed as a law by the President of the Republic of Azerbaijan.
Chamber of Accounts of the Republic of Azerbaijan gives its opinion on the draft state budget and bugdet of extra-budgetary funds, annual report on state budget execution and appropriate law projects.
In accordance with the legislation, Chamber of Accounts conducts an audit of income and expenses of state and consolidated budget. ⁹⁷
The process of preparation of draft state budget commences 11 months before the next fiscal year and covers the period untill the draft budget is presented to the National Assembly of the Republic of Azerbaijan (Milli Majlis).
The draft budget is based on the macroeconomic forecasts of the country’s economic and social development, target programs, sectors of economy, administrative districts, all businesses regardless of ownership, financial and economic activities for the current and following year made on the basis of the evaluation results of the next fiscal year.
The draft law on the state budget for the next fiscal year along with other documents attached should be submitted to the National Assembly of the Republic of Azerbaijan (Milli Majlis) for consideration and approval no later than 15 October.⁹⁸