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Government Waters Down Planned Toughening Of Taxation


By Atom Markarian
The government appears to have watered down its proposed major toughening of tax collection rules after heavy lobbying by Armenia’s largest business association which claimed that it could hit hard law-abiding firms.

A package of draft amendments to the country’s tax legislation, which would introduce stricter sanctions for the widespread evasion of the corporate income tax, was due to be debated by parliament this week. However, the debate was delayed until next week amid heated discussions between senior government officials and members of the Union of Industrialists and Entrepreneurs (AGM).

The union’s deputy chairman, Krist Pilosian, told RFE/RL on Friday that the Finance and Economy Ministry, the main author of the bill, has agreed to make “numerous changes” put forward by the business community. He said the deal was reached on Thursday night after week-long negotiations.

“They made concessions on many issues,” Pilosian said. “The businessmen do not seem have serious objections to the package now.”

The talks centered on a controversial government proposal to force all businesses posting financial losses to pay a corporate tax equal to 5 percent of their annual turnover. Finance Ministry officials said the extraordinary measure would scale back the routine underreporting of revenues by Armenian firms.

Over a thousand large and medium-sized companies posted more than 200 billion drams ($354 million) in combined losses in 2002, despite a record-high rate of economic growth in Armenia. Independent economists agree that many of them simply hide their profits through fraudulent bookkeeping.

Pilosian, whose organization comprises most of the country’s large businesses, admitted that the practice is widespread, but said there are many Armenian companies that indeed operate at a loss. “We do understand the government’s point,” he said. “But our concern is to make sure that enterprises objectively incurring losses are differentiated from those that hide their profits.”

The government agreed among other things to deduct from the taxable sum the amount of capital investments made by a company in the course of a particular year, according to Pilosian.

The legislative package, tied to the government’s draft budget for next year, is to be discussed by the National Assembly on December 12. Many of its deputies are wealthy individuals with extensive business interests.

The amendments, if they are approved by the parliament, will also introduce stricter rules for the payment of employee taxes and allow more frequent inspections of businesses suspected of tax evasion. The government hopes that the measures will help it raise 8 billion drams in extra tax revenues in 2004.
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