The government will have trouble significantly raising its tax revenues next year unless it finally breaks up domestic “oligopolies” and downsizes the informal sector of the domestic economy, the head of Armenia’s leading business association warned on Monday.
The revenue increase is essential for the success of government plans to raise public spending by about 5 percent to 1.05 trillion drams ($2.8 billion) in 2012.
The government’s draft budget for 2012 unveiled late last month commits the State Revenue Committee (SRC) to collecting an additional 101 billion drams in taxes and other state duties for that purpose. The SRC head, Gagik Khachatrian, questioned this target, saying that it is not realistic given the pace of economic growth in the country.
Prime Minister Tigran Sarkisian dismissed Khachatrian’s objections. He said the SRC can meet the higher revenue target by improving the tax administration and cracking down on the shadow economy.
Arsen Ghazarian, chairman of the Armenian Union of Industrialists and Entrepreneurs, agreed. “I don’t think that the extra 101 billion drams will be too much of a burden [for the SRC] if all the sectors are taxed equally, if the size of the shadow economy decreases rapidly, if we drastically reduce the number of entrepreneurs operating in privileged taxation conditions,” he told journalists. “In that case, it will be possible to collect those 101 billion drams.”
“There are branches of the economy -- I don’t want to name them -- where shadowy business has a pretty large scale and where there is an unhealthy environment for competition,” Ghazarian said. He added that he and other members of his union expressed this view at a recent meeting with President Serzh Sarkisian and that the latter agreed with it.
The Armenian government and Prime Minister Sarkisian in particular have repeatedly pledged to create a level playing field for all businesses. Sarkisian has also acknowledged the existence of “oligopolies” that control lucrative forms of economic activity such as imports of fuel and basic foodstuffs.
The oligopolies are in turn led by wealthy businesses close to the authorities. Hence, lingering skepticism about the government pledges to dismantle them.
Ghazarian noted that “a lot remains to be done” in improving Armenia’s business environment.