Tax Minister Admits Huge Scale of Shadow Economy

YEREVAN (RFE/RL)–Minister for State Revenues Yervand Zakarian acknowledged on Monday that a large part of the Armenian economy remains beyond the reach of tax authorities despite their declared efforts to tackle widespread tax evasion.

Zakarian said as much as 40 percent of economic activity in Armenia is not being taxed by his agency and the government’s customs department.

"The undeclared business turnover continues to make up a high percentage [of GDP]," he told reporters–adding that the so-called shadow sector of the economy still has a "fairly large" scale. "So I think that the tax authorities have a lot of work to think about and perform."

The minister made the commen’s after trumpeting a markedly improved tax collection in the first half of the year. The ministry for state revenues claims to have collected 47 billion drams ($82.5 million) in income–value-added and other taxes – more than was projected by the government.

The government’s aggregate tax and customs revenues equaled 89 billion drams during the period in question. This is 3 percent higher than the first-half figure forecast by its 2002 budget.

According to Zakarian–the increase has resulted from a more efficient tax administration and stronger "discipline" among corporate taxpayers that routinely underreport their revenues. But he said the budget revenues would have been by 40 percent higher if the authorities had succeeded in eradicating the shadow economy.

Analysts believe that the rampant government corruption is a key factor contributing to its continuing existence. Many businesses controlled by or connected to senior government officials are widely believed to enjoy preferential treatment by tax officials who turn a blind turn a blind eye on instances of tax evasion. Corruption is particularly widespread among the latter.


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