By Emil Danielyan
The International Monetary Fund is satisfied with Armenia’s macroeconomic performance this year but remains concerned about the low level of government revenues, a senior IMF official said on Wednesday. The Fund’s resident representative in Yerevan, Garbis Iradian, said the authorities are unlikely to improve tax collection next year unless they take “additional fiscal measures” suggested by the IMF.
“In the IMF’s view, the macroeconomic situation in Armenia is encouraging,” Iradian told RFE/RL in an interview. “The only concern we have is on the fiscal side. Although the overall budget deficit is narrowing we don’t see significant improvement in the tax revenue collection.”
Iradian said the Armenian government should collect more taxes in order to reduce its heavy dependence on external borrowing. “Compared to other transitional and developing economies of the world, Armenia has one of the lowest ratios of collected taxes to Gross Domestic Product,” he explained.
The 2001 budget commits tax authorities to collecting a total of 174 billion drams ($310 million) in tax revenues, which is about 15 percent of the country’s GDP. The IMF believes that that proportion can be raised to 20 percent.
The government’s draft budget for next year calls for 194 billion drams worth of tax revenues. The government hopes that a package of amendments in the country’s tax laws approved by the parliament last week will allow it to meet the higher fiscal target.
Much of the increase is supposed to be achieved through a stricter enforcement of the tax laws. In particular, businesses underreporting their profits or posting false financial losses will face heavier fines.
The changes were criticized on Wednesday by Armenia’s largest business association, the Union of Industrialists and Entrepreneurs. “We strongly believe that frequent changes in the tax legislation are unacceptable,” its chairman, Arsen Ghazarian, told reporters. He said tax officials will now have more levers to harass and extort bribes from businesses. The ministry for state revenues, the main author of the bill, has rejected all proposals submitted by the union, Ghazarian added.
Iradian said those changes alone are insufficient for the successful implementation of the 2002 budget. He said the IMF is suggesting to Yerevan to take additional fiscal measures such include levying value-added tax on all imported goods at the Armenian border and reducing the number of such commodities exempt from VAT.
According to Iradian, the IMF wants more tax-related steps from the government before giving the green light to the release of a crucial $15 million loan tranche from the World Bank. The money is part of the bank’s $50 million Structural Adjustment Credit (SAC) that was meant to cover nearly half of Armenia’s budget deficit. The IMF’s insistence on improved fiscal performance led the World Bank to delay release of the SAC tranche in October.
The move followed a major shortfall in the third-quarter state revenues. The government has since pledged to redress the setback by raising 53 billion drams in the fourth quarter. Almost 20 billion drams of that is to be collected this month.
“We will watch closely the outcome of the December tax collection,” Iradian said. He made it clear that apart from meeting that target the authorities should also address the IMF’s “concerns about the tax revenues planned for next year.”
“Negotiations are still continuing, and we hope that by the end of January we might reach an agreement with the Armenian authorities on a full package of measures,” he said.