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By Atom Markarian

The government opened on Thursday a new front in its efforts to boost tax revenues, announcing plans to restrict widespread cash transactions -- a major source of tax evasion in Armenia.

Under a new draft law approved by the cabinet at its regular weekly session, corporate payments for a single purchase of goods or services worth more than 500,000 drams ($865) should be carried out only through bank transfer. The monthly amount of cash transactions sealed by a company can not exceed 5 million drams.

The measure, if it is approved by the parliament, will be effective from next January. The government envisages to lower the cash threshold to 300,000 drams per deal from January 2004 and to 100,000 drams in January 2005. The monthly limits will accordingly be cut to 3 million drams and 1 million drams.

Deputy Minister of Finance and Economy Tigran Khachatrian said the restrictions are part of the government’s attempts to scale down widespread tax evasion and the huge informal sector of the Armenian economy. He said they will lead to a sizable rise in state revenues in the coming years.

Tax revenues make up approximately 14 percent of Armenia’s GDP. Their share is at least twice higher in the world’s developed economies.

Economists estimate that as much as 75 percent of domestic business deals in Armenia are done in cash, making it much easier for many local companies to underreport their revenues and thus pay less taxes. It also means that most of the money in circulation bypasses the country’s banking sector which in turn remains too small to generate faster economic growth.
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