By Vestnik Kavkaza
Protests by several hundred merchants of flea markets took place in Yerevan. They demanded cancellation of the Law on Turnover Tax from the government. The authorities didn’t give a clear response, and the protesters stated that they intend to ignore the new law.
According to amendments which were made in summer 2014, the turnover tax is decreased for small to medium-sized business (to 58 million drams, i.e. $110 thousand) from 3.5% to 1%. At the same time, merchants should present documents on turnover to tax services, including information on remaining products and commercial invoices. Otherwise, the law requires fees and a 5% tax to be applied for abusers.
The law was due to begin its operation on October 1st 2014. However, because of mass protests, its launch was delayed till February 1st 2015, so that economic entities could be ready to work under the new conditions. However, the day before February 1st new mass protests began. Representatives of small and medium-sized business (SMB) expressed their concern about the prospects of regular checks by tax services. Businessmen are sure that the new order will lead to extra expenditures and negatively influence their small incomes; and the main thing is, it would encourage tax pressure. According to Mikael Melkumyan, an MP from Prosperous Armenia, following bureaucratic procedures and regular tax checks will destroy SMB.
Another problem is presenting commercial invoices on supply goods, i.e. information on major businessmen.
Representatives of the ruling Republican Party say that flea market merchants are not interesting to the government as tax payers, and the law is aimed at revealing (by documents on supply goods) major businessmen who hide their revenues. According to flea market workers, if the authorities want to take major taxpayers to the tax space, they shouldn’t do it at the expense of SMB.
Thus, the new law requires a mechanism of taking major businessmen who don’t pay taxes from the “shadows”. The government believes that presenting the necessary documents by small business will encourage legalization of the revenues of major entrepreneurs. At the same time, the mechanism is unlikely to work under the current management system in Armenia.
Firstly, major businessmen often present no documents to representatives of SMB; and after launching the new law, they will stop doing it at all, as commercial invoices contain information on their indirect revenues. Secondly, the current authorities of Armenia support big business and act according to its interests. From this point of view, their desire to reveal major taxpayers who stay in the shadows by putting pressure on SMB looks strange.
“Today Armenia has a classic model of the shadow economy: big business which stays in the shadows uses the patronage of the government. The authorities are well aware about major businessmen who hide their revenues, but instead of taking them into the tax space, they suppress SMB,” said Vaagan Khachatryan, an expert on economic issues.
Moreover, strengthening of pressure on SMB by the tax services objectively leads to a worsening of SMB working conditions; it may result in the losses of thousands of jobs.
According to Gagik Makaryan, the head of the Union of Employers of Armenia, the new law makes representatives of SMB change their activities; but they will have nothing to do, as the government doesn’t provide opportunities for this.
Many experts are sure that under the current crisis situation the government shouldn’t make amendments to the Tax Code, even if the amendments are aimed at taking business from the shadows. The new law is unacceptable, as SMB solves the problem of job creation rather than dealing with budget problems. Moreover, to legalize the revenues of big business, simpler mechanisms can be used.
On February 2nd at a meeting with Premier Ovik Abramyan, representatives of the parliamentary opposition presented a package of corrections to the law. It is based on a free-will principle which requires business activity either within 3.5% of turnover tax or 1% of turnover tax. The government intends to consider the opposition’s proposals. What the result of the process will be is not clear, but it is obvious that the problem needs to be solved finally rather than postponed for a while.
