By Emil Danielyan
The Armenian government has reported an almost 27 percent year-on-year increase in the amount of various taxes collected during the first half of this year, putting it on track to implement its record-high budget for 2007.
According to the Ministry of Finance and Economy, the government’s tax revenues in January-June totaled over 201 billion drams ($597 million), equivalent to 21 percent of Gross Domestic Product.
With most of economic activity in Armenia taking place in the second half and many local businesses forced to pay taxes in advance, the proportion is certain to fall in the coming months. The government’s target for 2007 is 15.2 percent, which is 1.7% percentage points higher than the figure registered in 2006.
Even if tax authorities succeed in meeting the target, Armenia’s tax/GDP ratio will still be one of the lowest in the former Soviet Union due to widespread tax evasion. Wealthy entrepreneurs, especially those with close ties to the government, are believed to continue to underreport their earnings.
Proceeds from the collection of corporate profit tax made up only 18.6 percent of the first-half tax revenues, despite the fact that the Armenian economy is on course to expand at a double-digit rate for the six consecutive year. In fact, the share of taxes levied from large enterprises dropped during the same period, meaning that small and medium-sized firms remain the principal contributors to the state budget. Those firms have long complained about harassment by tax officials keen to meet their rising revenue targets.
The first-half tax revenues rose mainly as a result of an almost 40 percent surge in value-added tax (VAT), much of it paid by ordinary Armenians. The Finance Ministry data show that VAT accounted for nearly half of those revenues. Payroll tax and excise duties on tobacco and alcohol each accounted for about 10 percent of the total.
The government admits that tax fraud in Armenia is commonplace. The International Monetary Fund and the World Bank have for years been pressing it to tackle the problem in earnest.
Last May, the government approved a three-year plan of legislative and administrative measures that are supposed to make it much harder for local businesses to evade taxes. The measures include the abolition of tax exemptions and breaks enjoyed by companies registered abroad, improved tax administration, and tougher penalties for tax evasion.