Armenia Overhauls Tax System

YEREVAN (RFE/RL)–Armenia made a series of major changes to how the state manages its income on Thursday with a package of legislative amendmen’s to more than a dozen Armenian laws regulating tax collection and a presidential decree merging the government’s tax and customs services.

Tax and Customs
In a move reflecting his administration’s ongoing crackdown on tax evasion, Armenia’s President Serzh Sarkisian merged the government’s tax and customs services into a single agency on Wednesday.

Sarkisian said he decided to incorporate the two agencies into the newly formed State Revenue Committee because the State Tax Service (STS) has been performing “extremely badly.” He referred to an August 1 meeting during which he gave the STS chief, Vahram Barseghian, and other top tax officials one month to achieve a marked improvement in the collection of taxes.

A statement by the presidential press service quoted Sarkisian as saying that during the past 20 days the STS leaders have not only failed to improve their performance but have shown no “desire to affect change.”

"I haven’t seen that they go to work to provide services to the state and business,” he said. “I haven’t seen the effort, the energy, the desire to work.”

“This is a case where surgical intervention is indispensable,” he added, according to the statement.

The overhaul of Armenia’s tax and customs services came despite an almost 35 percent rise in state revenues reported by the government in the first half of this year. The bulk of the gain resulted from a 46 percent surge in proceeds from collection of value-added tax (VAT). Most of VAT was levied by the customs from imported goods.

That might explain why the head of the State Customs Committee (SCC), Gagik Khachatrian, rather than Barseghian, was named to run the State Revenue Committee. Sarkisian harshly criticized Barseghian, a figure close to his predecessor Robert Kocharian, as he introduced Khachatrian to the new agency’s staff.

The Armenian president and his prime minister, Tigran Sarkisian, announced a major crackdown on tax evasion shortly after taking office in April. Earlier this month the government approved a three-year plan of actions designed to tackle the problem. The creation of the State Revenue Committee appears to be also part of the effort.

Analysts cautiously welcomed the structural change. “In my view, the tax and customs service must operate in tandem and within the same structure,” said Tatul Manaserian, an independent economist and former parliamentarian. “A lot needs to be done to achieve a full synergy between them.”

“Such structural changes have been personalized in the past,” Manaserian told RFE/RL. “Two agencies would be merged for the sake of one individual. I want to believe that there is serious concern behind this change.”

Vigen Sargsian, a spokesman for the Yerevan office of the World Bank, said, “The government has serious reform programs in the tax and customs spheres, and let’s hope that the latest structural change will serve its purpose.”

Curbing Tax Evasion
Meanwhile, the National Assembly on Thursday passed a package of government-drafted amendmen’s to more than a dozen Armenian laws regulating tax collection. The amendmen’s are part of a three-year government program designed to significantly reduce the scale of tax evasion in the country.

One of changes scrapped a preferential form of taxation that has been enjoyed until now by small retail traders at non-agricultural markets across Armenia. They will no longer be exempt from value-added and other taxes levied from larger businesses.

Parliament opened debates on the amendment package on Tuesday. Many traders fear that the measure will force them out of business. Hundreds of them demonstrated outside the parliament building against the proposed changes which are part of a broader government program to tackle widespread tax evasion.

The three-year program was approved by Prime Minister Tigran Sargsyan’s cabinet earlier this month. It envisions a series of administrative and legislative measures which officials say will address both tax fraud and arbitrary actions of tax authorities. Sarkisian said the reform will primarily target large companies suspected of grossly underreporting their earnings and result in an “environment of soft tax administration” for small and medium-sized businesses.

However, it is small business that is the main target of the government’s draft amendmen’s to Armenia’s Customs Code and a dozen other laws regulating taxation that were put to parliament debate. In particular, the legislative package calls for the abolition of so-called “simplified tax” that has exempted small firms and individual traders from payment of value-added tax and other hefty duties levied from larger companies.

As a consequence, thousands of traders selling non-agricultural products in 370 or so marketplaces across Armenia would have input their transactions in cash registers used for calculating the amount of VAT and profit tax paid to the state. They have until now paid a single fixed tax depending on the size and location of their commercial space.

Addressing the National Assembly, the deputy chief of the State Tax Service, Aharon Chilingarian, said the measure would only hit hard a relatively small number of wholesale traders who he said have been grossly evading taxes. He said “only two or three” markets could shut down as a result.

The traders who gathered outside the parliament building thought otherwise. “I stand on the street in the winter cold and the summer heat to make only 2,000 to 3,000 drams ($7-$10) a day,” said one man. “I have two small children. If they approve the changes, I will personally smash my cash register in public.”


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