By Anna Saghabalian
Social security taxes levied from Armenia’s leading utility companies are the single largest source of pensions paid to hundreds of thousands of elderly citizens, a senior government official said on Wednesday.
Vazgen Khachikian, head of the State Social Security Fund, unveiled the list of the country’s biggest pension taxpayers, which is topped by the Armenian electricity and natural gas distribution networks as well as ArmenTel, the national telecommunications company.
Armenia’s moribund state railway is in a surprising fourth place, paying more to the pension fund than the country’s largest corporate taxpayer, the Zangezur Copper-Molybdenum Plant. Zangezur is only sixth on the list made available to RFE/RL by Khachikian.
Other big and lucrative Armenian companies are much lower in the rankings. The Sanex company, for example, which enjoys a de facto monopoly on imports of basic food commodities, paid less in social security taxes than each of the country’s main hospitals.
According to Khachikian, this does not necessarily testify to gross tax evasion as the main factor in pension tax collection is the number of people employed by a particular company and the size of their wages. “We have to keep in mind that it is possible to make big profits with few employees,” he said.
“But this doesn’t mean there are no companies evading social security and other taxes,” Khachikian said, adding that the practice is particularly widespread among construction companies, restaurants and numerous taxi firms.
They are believed to artificially reduce their contributions to the State Social Security Fund by underreporting the number of their employees. It is also not uncommon for private firms to underreport their workers’ wages. The practice is thought to be commonplace in all sectors of the economy.
With the total annual amount of officially declared wages paid in the private and public sectors estimated at 500 billion drams ($1.65 billion), analysts say the Armenian government should be able to collect at least 110 billion drams in social security tax this year. However, the pension fund’s revenues are expected to come in at only 85 billion drams.
In an effort to address the problem, the government decided two years ago to transfer the authority to collect pension tax from the fund to the State Tax Service. Khachikian said the move has worked as his agency rapidly balanced its books and posted a net surplus of more than 4 billion drams in 2006. The surplus is on course to reach at least 7 billion drams next year, he said.