Revenue ManagementDistribution of revenues §3.7Revenue management and expenditures §3.8Subnational payments & transfers §4.2 (d) (e)
Policy decisions regarding revenue management determine whether natural resource wealth translates into sustainable development and poverty reduction. Key governance challenges associated with revenue management include misappropriation of revenues before they reach the national budget; lack of fiscal rules leading to expenditure volatility and poor investment decisions; nepotism and patronage resulting in direct allocations of resource revenues to special interests; and weak public financial management systems; which leads to poor investment strategies and wasteful spending.
Transparency around revenue distributions is crucial to understanding how natural resource wealth is being managed. The disclosures related to revenue management that are required and/or encouraged under the EITI Standard should be implemented in ways that address national governance challenges and lead to meaningful policy reform.
Potential areas for policy reform in this area include reforming fiscal policies to promote prudent, long-term spending decisions;improving revenue saving mechanisms; aligning expenditures with national development priorities; and enhancing budget and spending oversight.
3.7. The EITI Report must describe the distribution of revenues from the extractive industries.
a) The EITI Report should indicate which extractive industry revenues, whether cash or in-kind, are recorded in the national budget. Where revenues are not recorded in the national budget, the allocation of these revenues must be explained, with links provided to relevant financial reports as applicable, e.g. sovereign wealth and development funds, sub-national governments, state-owned companies, and other extra-budgetary entities.
b) Multi-stakeholder groups are encouraged to reference national revenue classification systems, and international standards such as the IMF Government Finance Statistics Manual.
EITI Report Data
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)
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.
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  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)
Table 23:The breakdown of payments of Oil Fund in 2015 (mln manats)
The state revenue from the mining industry
Consolidated total income of the state budget amounted to AZN 17.5 billion manat in 2015. During the reporting period receipts from the mining industry amounted to AZN 8.7 billion manat and this made 49.7% of the total budget revenues.
Table 29:Proceeds cover EITI reporting 2015 from extractive industry
The analysis of the state budget revenues shows that eleven companies accounted for 77.6 % of budget revenues in 31 December 2015.
3.8. The multi-stakeholder group is encouraged to include further information on revenue management and expenditures in the EITI Report, including:
a) A description of any extractive revenues earmarked for specific programmes or geographic regions. This should include a description of the methods for ensuring accountability and efficiency in their use.
b) A description of the country’s budget and audit processes and links to the publicly available information on budgeting, expenditures and audit reports.
c) Timely information from the government that will further public understanding and debate around issues of revenue sustainability and resource dependence. This may include the assumptions underpinning forthcoming years in the budget cycle and relating to projected production, commodity prices and revenue forecasts arising from the extractive industries and the proportion of future fiscal revenues expected to come from the extractive sector.
EITI Report Data
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.
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.
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.
Subnational payments & transfers – 4.2.d and 4.2.e
EITI Report Data
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 34th meeting dated 10 December 2014 to eliminate the information which is not relevant to Azerbaijan Republic.
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.