The taxation of production also played a great role for the stabilization and development of the economy. High taxes hindered intensive development of the industry. In January 1996 a number of documents on the reduction of taxes on industries were prepared and adopted. However, by the spring of 1997 budgetary issued were not solved yet. Usually taxes are increased in order to fill the budget, but the president decided to decrease certain taxes to create more favorable conditions for industries.
Along with wages businesses had to pay 35% corporate tax. In September 1996, the government reduced the tax by 50 % and on January 1, 1997 it abandoned the practice of collecting corporate payroll taxes. Individual tax was reduced from 55 to 40 % in line with international standards. The government increased the income crossbar for individuals who were not supposed to pay taxes from 40 thousand to 60 thousand manats. It also reduced customs duties. In fact, it had no effect on ever-increasing large scale bribes and monopolization on the import and export of goods, including the mostly consumed goods and all the rest. Duties on various types of goods amounted to 30-40%, and were made a standard.
The conducted reforms and the strengthening of state institutions proved to be successful. While in the first quarter of 1996 the Ministry of Taxes collected 290 billion manats, in the first quarter of 1997 this figure reached 447 billion manats. The second main direction of the economic development were structural changes in the field of privatization and agrarian reforms. 2 From 1996-1997 a small-scale privatization was conducted which included the sale of small establishments for the purpose of becoming shops, hairdressers etc. It became one of the most powerful sources of income for the state budget and, of course, of enrichment for public officials. By April 1997, more than 29 thousand objects were privatized, and the privatization continued. At the time, the transition to a a large-scale privatization with the help of vouchers was taking place. However, fraudulent schemes developed with the help of the Committee for Privatization made the involvement of all vouchers in the process of privatization redundant.
As a result, the major population of the country was left out of the privatization process. Collected vouchers became worthless paper in the hands of romantics, who wanted to invest in the privatization and profitable enterprises. Azerbaijan was and remains an industrial and agricultural country, with very well developed agriculture. By adopting the Law on Land Heydar Aliev took an unprecedented step: Azerbaijani citizens were allowed to buy and sell land and build farms. By the spring of 1997 18 thousand households were formed.4 In 1997 a program named TACIS (Technical Assistance to the CIS) was launched. Under this program, an amount of $ 32 million owed to the EU for the supply of wheat to the country in 1993 during the grain crisis remained in the country by the decision of the organization and was to be transferred to farmers for the development of their farms in the form of subsidized loans.
However, the terms of loans granted to farmers, proved unrealistic: loans were given by commercial banks for a year or a year and a half with the interest rate of 24%. In the case of late payment interest doubled. These conditions did not allow farmers to develop agricultural production and many farmers went bankrupted. However, it was possible to use this money in commercial transactions. For that reason, the government did not receive a strong agricultural market it hoped for. The majority of impoverished farmers had to emigrate to Russia in search for work. The adoption of the Law on Land and the reform, which provided the transfer of land to private ownership for agricultural use and the elimination of collective and state farms, caused massive unemployment. Another consequence of the adoption of this law cannot be considered anything but harmful: buildings from the Soviet era which had once cost hundreds of millions of rubles were destroyed while bricks and fittings were divided among the former farmers. It got to the point of absurdity: even clay buildings were destroyed. It was a tragedy that ended with the destruction of the material foundation of agriculture. Thanks to the oil sector economic reforms started to work in 1997. Structural changes in the economy were not related only to the privatization, there were other fields. For example, the establishment of joint ventures in cooperation with foreign companies, the transfer of managements in companies also prompted the development of industry. The third major direction was institutional changes. Their main objective was to create a management system in the form of an institutional framework allowing to transition to a self-regulating system which was supposed to finance itself. The government abolished several state concerns, such as the concern of bakeries and the concern "Usluga," and turned the companies "Azerigas" and "Azerenergy" into joint stock companies.
Gradually the economy based on market principles began to bring results. In Soviet times, the snow in the southern city was a true disaster and bread disappeared from shelves in stores. At that time the problem of the lack of bread in a snowbound town was not anymore present. A certain competition developed between the state and private companies. The elimination of bureaucratic structures that impeded economic activity was initiated. Functions of ministries were brought in line with market requirements. Reforms directly related to activities of companies in the field of oil industry were conducted by the Ministry of Foreign Economic Relations. The liberalization of foreign economic relations and elimination of all quotas also took place.
The largest part of the capital was directed at the oil industry, but gradually investments in other industries started to increase. The government took steps to force most of the capital, directed at the oil sector remain in the country. The inflow of capital in the oil field was beneficial to the development of other sectors such as steel production, engineering and construction.
