Myths about taxes and Domestic employment in Georgia

The Association of Nannies and Domestic Workers responds to myths prevalent in society regarding domestic employment and tax issues.

Myths about taxes and Domestic employment in Georgia

Myth #1 : "Family workers don't pay taxes"

The widespread belief in society that family workers do not pay taxes at all is false. It would be correct to say that the majority of family workers only do not pay income tax, while family workers pay other taxes like everyone else.

There are direct and indirect taxes in Georgia. Income tax is a direct tax and is deducted directly from wages. Indirect taxes, on the other hand, operate more invisibly. People often pay indirect taxes without even knowing about it. For example, when purchasing gasoline, tobacco, or alcohol, the price includes excise tax, or the price paid at a trade or service facility includes value-added tax. This applies to almost everything: whether you buy bread, clothes, or household appliances, you are making a contribution to the budget. The share of indirect taxes in taxes collected by the state annually significantly exceeds the share of income and direct taxes in total. Family workers, in this regard, pay indirect taxes in the same way as other workers. Formally and informally employed people standing at the cash register are indistinguishable from each other.

At the same time, the opinion that the majority of employed people in the family do not pay their own income tax is true. The income tax payment system in Georgia usually works like this: the administration of income tax payment is usually done by the employer - a legal entity, which pays 20 percent of its employees' salaries to the state budget;

In the case of employment within the family, the employer is usually a physical person.

It is a person, and often neither party to the labor relationship - neither the employee nor the employer - practically knows how taxes should and are paid.

However, the main and essential reason why family workers do not pay income tax is that their income and that of their families often cannot or hardly cover basic expenses, and if it is further reduced by income tax, it may be even more difficult for them to survive. At the same time, family workers already pay the price for not paying income tax: they do not have access to a number of social benefits, such as state-paid maternity leave; family workers also have limited access to banking services. The majority of family workers - nannies, caregivers, cooks, personal drivers - have not received any government anti-crisis assistance during the pandemic.

The fact that family workers usually do not pay income tax is not simply their individual responsibility, but a structural problem. The Georgian tax and social security system is designed in such a way that the payment of income tax is not linked to the receipt of social benefits. International experience shows that in order to encourage the declaration and formalization of one's income, it is necessary to have incentive mechanisms, for example, an employed person should know that if he pays income tax and insurance contributions, he will receive unemployment benefits or better health care in return.

In Georgia, the targeted social benefits system works in the opposite way - in the case of formalization and declaration of one's own income, a person may lose this or that benefit, including access to so-called universal healthcare.

Myth #2: "They don't want to formalize their activities and pay taxes"

Myths about taxes and Domestic employment in Georgia

Georgia operates a so-called proportional tax system: almost everyone, regardless of their salary, must pay 20 percent of their income. This system does not take into account income inequality, the fact that people with low, middle and high incomes are burdened differently by paying only one-fifth of their income in income tax, and that for low-income people this means living in even deeper material deprivation. At the same time, the Georgian tax system views people as separate, as if they were completely alone.

To be or not to have obligations to others: In Georgia, a salary of 1,500 GEL is taxed the same, regardless of whether a person supports a family of five with minor children or only supports themselves.

According to a digital survey conducted in 2021, 30 percent of family workers do not support formalizing their activities because they do not want to pay taxes, but according to the same survey, 61 percent of family workers would consider formal employment if the income tax rate were reduced to 5 percent.

This data shows that if a progressive tax system is implemented or special tax breaks are introduced for family workers, they will be more willing to pay income tax. A progressive tax system, simply put, means that high-income earners are taxed at a higher rate than those with low and middle incomes; and A tax exemption refers to a special taxation regime for a particular sector or individual employees.

At the same time, it is also noteworthy that the payment of income tax by domestic workers, especially their employers, often speaks as if it were only a problem for the nanny or other domestic worker. In fact, if the state strictly requires the payment of income tax by domestic workers and, in this regard, tightens control, it will increase the price of domestic worker labor: if nannies have to pay a fifth of their current salary to the budget, they may no longer agree to the salary they agreed to before formalization. This is, of course, not the only scenario, but it is undeniable that the issue of taxes will have a significant impact on wages and working conditions in the field of domestic employment.

At the same time, the state knows that the majority of family workers do not pay income tax. First of all, this is publicly known and, therefore, it is understood that this is also known to state agencies. On the other hand, this is also shown by the data of the National Statistics Service - there are people who provide services to households;

According to the National Statistics Service of Georgia, there were 17,700 such people in 2024. Despite this knowledge, the state has not taken any measures or tightened control. There has been no public call from state agencies for domestic workers to pay taxes.

There is an opinion that the reason for this is the indirect recognition by the state that it cannot provide citizens with public care services - care for children, the elderly, and people with disabilities - and, in return, since hiring a nanny or caregiver is the personal responsibility of the family, it no longer burdens this relationship and thus no longer increases the cost of the service that it should provide to citizens for free or at a reduced price.

Myth #3: "Because they don't pay taxes, they don't have labor rights"

Behind all these false claims lies a systemic problem. Download the document in full.

Domestic work is a low-paid activity, which is why even in countries where the state considers domestic work to be an employment relationship, domestic workers sometimes choose to remain in the informal sector to avoid paying taxes and contributions.

That is why the success of formalization efforts also depends on the tax and , in general , fiscal policy towards family employment .

International experience shows that family workers are usually taxed at a relatively lower rate - either because a given country has a progressive taxation system and citizens with different incomes pay taxes at different rates, or because the legislation of some countries provides preferential conditions for family workers.

Georgia does not have a progressive taxation system, but the Tax Code provides for certain preferential regimes, such as the possibility of exemption from income tax for individuals with micro-business status. Such status can be granted to an entrepreneurial individual whose total combined income during a calendar year does not exceed 30 thousand GEL.

Extending this special taxation regime to family employees would be a good solution, were it not for the reservation in the tax legislation, according to which the special taxation regime does not apply to wages paid on the basis of an employment relationship. Thus, including a family employee in this special taxation system would be tantamount to removing his or her employee status and, consequently, depriving him or her of labor rights, which is contrary to international experience. In the existing tax system

To encourage formalization as a temporary measure until

The issue of informal labor and family employment will be more thoroughly regulated, possibly by:

• Like an individual with micro-business status, a family employee whose income does not exceed 30 thousand GEL during a calendar year will pay 1 percent instead of the 20 percent income tax;

• Unlike an individual with microbusiness status, the tax exemption regime should apply to the salary of a family employee, income received within the framework of an employment relationship - so that the family employee does not lose the status of an employee and the rights associated with this status in exchange for receiving a tax benefit.

  
  

  Technically, who will be responsible for payment, in what procedure and form, and how the field will be supervised are matters for further discussion and a choice between different models.

  
  

  Employment in the family is primarily an individual way for women to alleviate the problem of time pressure and time poverty caused by the lack of public care services and cultural beliefs. Hiring a nanny or helper is a prerequisite for a woman to enter or remain in work.

  
  

  Since the state cannot provide citizens with public care services ( whether for children or the elderly ) , this responsibility is transferred entirely to families . Under these conditions , taxation of the aforementioned labor relationship is inappropriate . The state should not increase the cost of services through taxes , which are normally its own obligation to provide free of charge or on preferential terms .

  
  

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The content was prepared within the framework of the project “Promoting the Decent Work Agenda for Family Workers in Georgia.” The project is supported by UN Women, the Swiss Agency for Development and Cooperation, and the Austrian Development Agency.