By Armen Zakarian
The Armenian government pushed through parliament on Wednesday a controversial package of legal amendments that will allow it to slap tougher sanctions on businesses suspected of tax evasion, a serious problem in the economically struggling nation.
The government watered down some of the proposed changes to neutralize a barrage of criticism from lawmakers during two of days of heated debates in the National Assembly. But it remained adamant in keeping intact the most important of those changes which targets scores of Armenian companies reporting suspicious financial losses.
Over a thousand large and medium-sized companies claimed to make no profits last year, posting more than 200 billion drams ($354 million) in combined losses. The tax authorities and independent economists believe that many of those were a result of fraudulent bookkeeping aimed at evading the flat corporate income tax of 20 percent.
Under the measures approved by the parliament’s pro-government majority, any company with a reported “profitability” rate of up to 5 percent is to pay a 1 percent turnover tax. The profitability will be calculated as the ratio of a company’s annual revenues to its aggregate assets.
Armenia’s largest business association, the Union of Industrialists and Entrepreneurs, and some wealthy parliamentarians opposed the amendment, saying that it would unjustly penalize law-abiding firms that indeed operate at a loss.
The government responded to that by agreeing to deduct from the taxable sum the amount of capital investments made by a company in the course of a year. It also made more significant concessions in other draft amendments, withdrawing in particular a proposal to give tax officials unrestricted authority to inspect businesses.
The Armenian Finance Ministry says the legislative package will bring 8 billion drams ($14 million) in extra tax revenues next year. The government is to collect a total of 256 billion drams in taxes, according to its draft 2004 budget.