Government Approves Tax Reform Plan

YEREVAN (RFE/RL)–The Armenian government approved on Thursday a three-year plan of legislative and administrative measures which Prime Minister Tigran Sargsyan hopes will reduce endemic tax evasion and at the same time end arbitrary actions by tax authorities.

Sargsyan has repeatedly described improved tax administration as his chief priority, saying that it is key to fighting against government corruption and strengthening the rule of law in Armenia.

His appointment as prime minister in early April was followed by a government crackdown on bribery and other illegal practices within Armenia’s notoriously corrupt customs service and more rigorous financial inspections of corporate taxpayers.

Sargsyan also formed last June a consultative council of government officials and businesspeople dealing with the introduction of a "new culture of tax administration." The move was followed by the introduction on July 1 of a new, less cumbersome, procedure for the filing of quarterly financial reports to the State Tax Service (STS).

The program adopted by Sargsyan’s cabinet commits the STS and other government bodies to taking more such measures in the next three years. As part of the tax reform, ministers also approved a raft of amendmen’s to Armenia’s Customs Code and a dozen laws regulating taxation. A government statement said they will be submitted to the National Assembly soon.

Speaking at the weekly cabinet meeting, Sargsyan said the reform will primarily target large companies suspected of grossly underreporting their earnings. He said it will also result in an "environment of soft tax administration" for small and medium-sized businesses The latter have born the brunt of crackdowns on tax fraud announced by the government until now, frequently accusing the STS of arbitrarily forcing them to pay more taxes.

So far there have been no indications that Armenia’s largest and most lucrative businesses, typically owned by government-connected individuals, have significantly boosted their contributions to the state budget. The government’s total tax revenues soared by 35 percent to 275 billion drams ($916 million) in the first half of this year. However, much of the gain resulted from increased proceeds from value-added tax (VAT), suggesting that tax collection is improving largely at the expense of ordinary consumers, rather than the rich. Corporate profit tax generated less than 17 percent of the first-half revenues, compared with a 51.5 percent share of VAT.

The government underlined its heavy reliance on VAT earlier this week when it ordered the mandatory use of cash registers by thousands of small traders selling prepared foodstuffs, clothing and other consumer goods in retail markets across Armenia. Sarkisian again defended what promises to be a highly controversial measure as he unveiled the tax reform package on Thursday. "If we can’t get information about the real turnover in [retail] trade, we will fail to fight against the shadow economy and to collect more taxes," he said.

The Armenian premier also stressed the importance of public support for the government’s reform agenda. "We need to receive the public’s support if are to succeed in this endeavor," he said. "It is our duty to give the public accurate information about steps taken by us."


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