The Armenian government’s tax collection agency maintained on Tuesday that its failure to meet its revenue targets for this year is the inevitable result of a sharp drop in the country’s Gross Domestic Product.
According to the latest tax data made public by Armen Alaverdian, deputy head of the State Revenue Committee (SRC), Armenia’s tax and customs services collected almost 428 billion drams ($1.1 billion) in various taxes and duties during the first ten months of 2009. The figure represents a 16 percent decrease from the same period of last year.
The shortfall is all the more dramatic given that the Armenian state budget for 2009 called for a 21 percent increase in the government’s tax and other revenues. The budget was drawn up by the government before the global financial crisis plunged Armenia’s economy into a deep recession. It contracted by as much as 18.3 percent in January-September 2009.
Alaverdian said that the SRC’s performance has been “good” considering the scale of the GDP drop. “If Gross Domestic Product goes down, so do tax revenues,” he told a news conference. “The main factor is the GDP reduction, the economic crisis.”
Alaverdian also pointed to a sharp drop in Armenian imports. Imported goods generate roughly two-thirds of SRC proceeds from the collection of value-added tax. The latter in turn accounts for about half of the government’s overall tax revenues.
The ratio of those revenues to GDP has long been very low even by ex-Soviet standards, highlighting the scale of widespread tax evasion in the country. It is believed to be particularly widespread among large and lucrative companies that are often owned by wealthy businessmen with close ties to the government.
Alaverdian insisted that the Armenian government is doing its best to crack down on tax fraud and at the same time end tax officials’ long-running harassment of small and medium-sized enterprises. He pointed to the recent passage by parliament of a government-drafted package of fresh amendments to Armenian tax legislation.
The initial version of those amendments submitted to the National Assembly in May met with fierce resistance from pro-government lawmakers with extensive business interests. They strongly objected to provisions allowing the SRC to deploy permanent “tax representatives” in businesses employing more than 500 people. Those agents would have unrestricted access to companies' facilities, financial documents and other information about their business operations.
The government pushed the bill through parliament this fall only after making significant changes in it. The adopted bill significantly limits the power of SRC representatives. In particular, they will now not be allowed to enter and inspect production facilities at will.
Alaverdian admitted that the government watered down the amendments under pressure from entrepreneurs controlling many of the Armenian parliament’s seats. “It is natural for those deputies who represent big business in the National Assembly …to engage in lobbying,” he said. “We should accept and be ready for that. The government itself should fight against that lobbying if it has serious arguments.”
According to Alaverdian, the government also reckoned with objections voiced by the International Monetary Fund and the World Bank. “The institution of tax representative also does not enjoy the backing of some authoritative international structures that believe administrative problems should be solved not through physical presence [of tax officials] but with other methods,” he said.