By Atom Markarian
The overwhelming majority of Armenia’s large and medium-sized companies, some of which are believed to be highly lucrative, claim to have incurred over 200 billion drams ($347 million) in aggregate losses last year.
The suspiciously high figure is based on financial statements filed by 735 mainly private firms with the tax authorities. The Armenian government believes that the corporate taxpayers continue to underreport their earnings in order to evade profit tax.
“There is a grave need to look into their documents justifying the credibility of the incurred losses,” the deputy head of the National Taxation Service, Armen Alaverdian, told RFE/RL at the weekend. He said tax inspectors will scrutinize the companies’ books for evidence of tax fraud which has been widespread in Armenia.
Last year, for example, about 2,000 businesses posted 90 billion drams in net losses. The government hoped to remedy the situation by having the parliament pass in late 2001 legislation toughening punishment for companies that post false losses. The tax agency can now impose heavy fines on those companies that are found to have engaged in the practice.
But judging from the fact that the claimed corporate losses have more than doubled over the past year, the measure has not had desired effects. Among the purportedly loss-making entities are lucrative businesses producing cigarettes, beer, soft drinks and even refined diamonds. Their owners are known to be successful wealthy businessmen.
Incidentally, the reported losses slightly exceed the total amount of taxes and import duties collected by the authorities last year. Proceeds from Armenia’s flat profit tax of 20 percent were only a fraction of the 2002 state revenues. The International Monetary Fund criticized the Armenian authorities last week for the “weak” collection of profit tax. The IMF said its next loan to Armenia is conditional on government efforts to address this and other “significant shortcomings” in revenue collection.