By Atom Markarian
The amount of tax revenues collected by the Armenian government is disproportionately low given Armenia’s double-digit rate of economic growth which is set to continue for a sixth consecutive year, President Robert Kocharian’s chief economic adviser admitted on Wednesday.
Vahram Nercissiantz said even though those revenues have increased considerably in recent years they are still nowhere near enough to meet the country’s basic needs, notably defense and social security. “It is evident that considering our robust economic growth, it should have been possible to collect much more tax revenues,” he told RFE/RL in an interview. “That has not happened.”
The government collected a total of 304 billion drams ($735 million) in various taxes and import duties last year, or 21.6 percent more than in 2004, and is on track to ensure a further increase in the tax revenues this year. That would allow it to successfully implement its 2006 budget which is projected to pass the $1 billion mark for the first time since Armenia’s independence.
Still, the taxes and duties collected in 2005 were worth only 14.5 percent of Gross Domestic Product. That proportion is very low even by ex-Soviet standards and will not rise markedly this year, highlighting the huge size of the informal sector of the Armenian economy. The International Monetary Fund and the World Bank regard the continuing widespread tax evasion as a key economic challenge facing the country.
Nercissiantz, himself a former head of the World Bank office in Yerevan, agreed that the Armenian budget should have been much bigger given the existing economic conditions. He said that would have allowed Armenia to end its heavy reliance on external budgetary and infrastructure loans. “External funding is needed during the transition period, but we must not remain dependent on it and fail to generate enough of our own resources,” he said.
The Armenian authorities regularly announce crackdowns on tax evasion that have so far mainly targeted small and medium-sized enterprises which have been complaining about harassment from tax officials. But the authorities have yet to take similar action against wealthy businessmen that have close connections in the government and control big chunks of the economy. Some of them also enjoy a de facto monopoly on the lucrative imports of fuel, foodstuffs and other basic commodities. Local analysts suspect that the volume of those imports has long been underreported by both the businessmen and the Armenian customs.
Nercissiantz declined to back government efforts to toughen jail sentences for tax evasion envisaged by the Armenian criminal code. He said the government should instead push for tougher penalties for corrupt tax and customs officials.