TAXING TIMES IN ARMENIA
Institute for War and Peace Reporting, UK
IWPR Caucasus Reporting #755
Oct 14 2014
Government backtracks on timing of new tax rules after protests by
small businesses.
By Gayane Lazarian – Caucasus
Across Armenia, shop owners are up in arms about a new business tax
they say will ruin them. The government appears to have listened,
and has promised to hold off on enforcing the changes, which came
into effect on October 1, until next February while flaws in the
process are sorted out.
At first sight, the Law on Turnover Tax should benefit small businesses
as it reduces their taxation rate from 3.5 to one per cent.
But the downside is that they will have to they were going to have
to document and declare every commercial transaction, in particular
purchases from their suppliers.
After meeting a delegation of small and medium-sized business
owners on October 6, Prime Minister Hovik Abrahamyan instructed
the finance ministry to draft a revised bill that would contain
clearer regulations, provide more favourable conditions for small
and medium-sized enterprises (SMEs), and postpone until February 1
one of the key requirements, concerning the filing of trade turnover
documents. In the interim, SMEs will be taxed at the new, lower rate
of one per cent.
The prime minister acknowledged that technical problems had arisen
with forcing businesses to draw up a complete inventory of all their
stock prior to the law coming into force.
Addressing parliament on October 2, Finance Minister Gagik Khachatryan
said the aim was to make life easier for SME owners. He noted that
international studies had shown that SMEs provided nine out of ten jobs
in Armenia and contributed 60 per cent of its gross domestic product.
“The government is therefore has an interest in developing small and
medium-sized businesses. I believe this [change] is even somewhat
belated,” he said.
Noting that 90 per cent of tax-paying organisations filed declarations
of under ten million drams (25,000 US dollars) a year, Khachatryan
said. “I just want to reassure traders that after October 1, the
taxation authorities won’t be taking any unnecessary action.”
Speaking before he blocked implementation of the new law, Prime
Minister Abrahamyan said the strategy was to reduce the tax burden
on SMEs and focus instead on getting big business to pay its dues.
“That’s our thinking, and I believe we’ll be successful if we do it
in a consistent manner,” he added.
These assurances did nothing to soothe tempers among SME owners,
whose principal concern was that in return for lower tax rates,
they were going to have to account for and declare every transaction.
Protests broke out in a number of towns across Armenia, and business
owners shut up shop to underscore their concerns.
Many said they would end up having to charge their customers higher
prices, which could drive them to bankruptcy. Others voiced suspicions
that the notionally uniform tax rate would in practice be applied
differently to different sectors.
“They’re planning to carry out so many checks and demand so
much documentation that it’s simply absurd for any independent
businessperson,” said Gayane Poghosyan, who stayed away from her stall
at Yerevan’s Malatiya Market to protest outside the government and
parliament buildings. “And what comes of it? They’re harming us in
order to make big business pay its taxes. Don’t they know who those
big business owners are?”
Poghosyan said the law would kill off small business owners like her
“who are just trying to feed our families”.
In Gyumri, 130 kilometres northwest of the capital, SME owners
threatened to block a major highway to demand that the law be annulled.
“Instead of chasing the big importers, they’re going after people who
sell sunflower seed and buns,” said local trader Vahram Lazarian. “If
I stop working, I won’t pay anything [in taxes] and that’s true of
thousands of others. If we don’t pay anything at all, how will that
be for the budget?”
Although now delayed, the law envisages a warning the first time a
business owner fails to submit transaction accounts, then a 20,000
dram (50 dollar) fine, and finally an increased taxation rate of five
per cent. The warning will disappear next year and the fine in 2016,
so that offenders will immediately be taxed at the higher rate.
Economist Mikael Melkumyan, who represents the opposition Prosperous
Armenia in parliament, sees the changes as punitive for SMEs.
“We aren’t against reducing the size of the shadow economy, we are
in favour of doing that – but not by these means,” he told IWPR.
Melkumyan said official statistics showed that of the 19,000 small
businesses recorded in 2010, exactly half had since closed down.
“This law creates a harsher taxation policy, and it will result in
5,000 to 6,000 businesspeople going bankrupt,” he said.
Gayane Lazarian reports for ArmeniaNow.com.
http://iwpr.net/report-news/taxing-times-armenia