Armenia: tax system is like a stranglehold for society

Protests moods are on the rise in Armenia among entrepreneurs, politicians and experts due to a number of provisions in the draft of the new Tax Code. On June 15th 68 MPs of the Parliament supported the bill,  21 were against and 18 MPs abstained in respect of the adoption of the new draft Tax Code in the first reading. The final adoption of the Tax Code is scheduled for September this year. The Tax Code is to come into force in 2018. The voting results mean the controversy of the bill approved by the parliamentary majority in the face of the ruling Republican Party of Armenia. Even the coalition ‘Dashnaktsutiun’ party decided to abstain. According to the head of the ARF faction Armen Rustamyan, the faction has serious concerns about the adoption of the draft in its current form.

Today, some experts expressed surprise how fast the Parliament decided to adopt the new document. This discrepancy examination tempos and the adoption of the Tax Code of the seriousness, complexity and volume of the document, according to the head of the Armenian Association of small business Stepan Aslanyan, indicates that many deputies fulfill someone's order. In this regard, the significant statement by the chairman of the Parliament of the permanent Committee on Economic Affairs Vardan Ayvazyan who proposed to adopt the draft in the first reading, and only then start discussing deputies’ proposals.

According to Deputy Chairman of the State Revenue Committee Vakhtang Mirumyan, the bill is designed to ensure longstanding economic growth, stability and predictability of business, liberalization of VAT and income tax, and so forth. Its goal is to stabilize the budget revenues revised excise rates on cigarettes, alcohol, certain types of fuel. The importance of the project is paid to the issues of fiscal discipline and transparency of the tax system.

However, opposition politicians, economists, and above all small and medium enterprises (SMEs) believe that numerous mechanisms of pressure on the business are inside the bill, the use has which is extremely negative impact on SME development, or simply lead to the cessation of activity of many objects SMEs. Some experts have already said that SME is a ‘hostage’ of the tax field of Armenia.

Economists and entrepreneurs are concerned by the fact that the bill lowered the threshold of turnover tax from 115 million drams ($1 is equal to 475 drams) to 40 million drams, which, in their opinion, will lead to an increase in already high tax pressure on SMEs. According to the opposition MP Hrant Bagratyan, the new Tax Code is a tax burden on taxpayers at least in the amount of 90 billion drams, increase in excise duties on a number of products will affect not only citizens, the majority of whom are is in a very difficult social situation, but also for entrepreneurs who face the problem of lack of competitiveness of goods produced by them.

According to the doctor of economic sciences Vardan Bostanjyan, the adoption of the new Tax Code in the conditions of underdeveloped business environment could lead to the destabilization of the economy, raising the already high level of poverty of the population and eventually to social protests: "The new Tax Code of Armenia is the pressure under which the economic subjects will lose interest in their activities. Unfortunately, our government is acting very irrationally and citizens regularly have to tighten their belts. It seems that the aim of the new Tax Code is to devastate the country "

A similar opinion was expressed by the leader of the United Labor Party Gurgen Arsenyan. "The economy of Armenia voting ‘‘with the help of its feet’’. The best part of entrepreneurs left the country and moved to other countries in ordre to make business there,"  Arsenyan said, saying that political majority has a program to finally bury the Armenian economy and devastate the country.

The vast majority of the various organizations working in the field of business were also against  the new Tax Code: American Chamber of Commerce in Armenia, the Union of Armenian Banks, the Association of enterprises of information technology, Union of Employers in the field of information and communication technologies, construction workers union, the Association of European Businesses, the Association of Small and medium-sized businesses, and others. Business environment representatives expressed the hope that before the adoption of the draft in the second reading of the government will take into account criticisms. Meanwhile, some of them don’t exclude that further progress of the bill in the form in which it was adopted in the first reading may lead to fight for people’s rights in the streets. As far as the planned protest will be successful, it is too early to say. However, all previous attempts led only to a temporary effect. Power through her controlled parliament, as a rule, always pursuing the necessary laws to it. It is another matter how profitable the power to push such an unpopular bill on the eve of parliamentary elections?

For more than 15 years in Armenia, despite many promises by the authorities, failed to carry out reforms that could somehow contribute to the progress, including the economy. Moreover, these were the years of extremely inefficient use of resources, including human ones. It is possible that these factors form the basis of government policies aimed at making the tax system, which is a derivative of the economy, the dominant element of the economy. Due to the absence of any measures to ensure the development and progress, and thanks to this dominant, desirable for each country the problem of centralization of financial resources has become a noose for businesses and society as a whole.