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Risking renewed protests from small businesses, the Armenian government confirmed on Tuesday plans to significantly restrict a legal exemption from valued-added tax (VAT) enjoyed by them.


Under Armenia’s existing legislation, small companies with an annual turnover of up to 58.3 million drams ($154,600) are eligible for a preferential form of taxation that exempts them from the payment of VAT, profit tax and other duties levied from business entities. They only have to pay so-called “simplified tax” or other fixed taxes mainly depending on their size and location.

The government introduced the VAT threshold in August 2007 as part of its efforts to phase out simplified tax which tax authorities said was increasingly abused by larger businesses keen to evade taxes. It ordered all small firms and even market traders to install cash registers in order to be able to calculate their real turnover.

According to Gagik Khachatrian, head of the State Revenue Committee (SRC), the government now wants to lower the VAT threshold to 30 million drams because many small businesses still avoid inputting their sales, services and output into cash registers despite heavy fines imposed by tax authorities.

“True, the state is interested in the development of small and medium-sized businesses in the country,” Khachatrian told a news conference. “But their real turnover is not being declared. They don’t issue cash receipts or work with invoices.”

“So the State Revenue Committee has no mechanism for calculating the volume [of their operations,]” he claimed.

Armenia -- Gagik Khachatrian, head of the State Revenue Committee.
Khachatrian assured reporters that the government will consult with representatives of the business community before pushing the change through parliament. Small business owners and market traders in particular will hardly welcome it. Hundreds of them for months protested against the introduction of cash registers.

VAT has long been the single largest source of the government’s tax revenues. Proceeds from the 20 percent tax, mostly collected from imported goods, accounted for almost half of those revenues during the first eleven months of this year.

Khachatrian announced the unpopular measure amid allegations that tax officials have stepped up harassment of small businesses lately to ensure that the SRC meets its revenue targets for this year. Some traders at several Yerevan markets interviewed by RFE/RL over the weekend claimed to have been fined between one and two million drams each after being falsely accused by SRC officials of accepting U.S. dollars from buyers in violation of the law.

Khachatrian insisted that tax inspectors have not done anything illegal. “For many years, they did what they want at markets,” he said. “What are we doing now? We are telling them that they are not allowed to work with dollars.”
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