Despite serious misgivings voiced by senior tax officials a year ago, the Armenian government appears to have succeeded in achieving a further sizable increase in its tax revenue envisaged by the state budget for 2012.
According to the latest available government data, the State Revenue Committee (SRC) collected 792.2 billion drams (around $2 billion) in taxes, social security payments and other duties in January-November 2012, a year-on-year increase of almost 12 percent.
The government thus almost certainly met its full-year tax revenue target of 874.4 billion drams, which represents a 13 percent increase over 2011. This was essential for raising its expenditures by 4 percent and at the same time cutting the budget deficit to a level equivalent to just over 3 percent of GDP.
The SRC chief, Gagik Khachatrian, repeatedly called the 2012 revenue target unrealistic in late 2011. One of his deputies, Armen Alaverdian, warned that the tax collection agency will have trouble meeting it if economic growth in Armenia falls short of a 4.2 percent rate forecast by the government.
The Armenian economy was on course to expand by 7 percent last year, according to the National Statistical Service (NSS).
The fiscal data released by the Finance Ministry shows double-digit gains in the collection of most key taxes. Proceeds from value-added tax (VAT), the single largest source of budgetary revenue, were up by 12.6 percent in January-November at 336.7 billion drams. The NSS recorded more modest rises in wholesale and retail trade in the country in this period, suggesting that the VAT receipts were primarily boosted by improved tax administration.
The SRC also collected almost 106 billion drams in corporate profit tax, up by 16.3 percent year on year. The Finance Ministry reported even sharper rises in the collection of excise taxes on tobacco and alcohol, import duties and royalties paid by mining companies. They were somewhat offset by a 3.3 percent rise in social security tax receipts totaling 116 billion drams.
The Armenian budget for this year commits the government to raising tax revenue by another 13 percent, to 993 billion drams. The government anticipates continued economic growth, projected at over 6 percent, and plans further improvements in tax collection in 2013.
Improved tax administration has been a key declared priority of Prime Minister Tigran Sarkisian’s cabinet. The introduction in January 2011 of mandatory electronic filing and payment for major taxes has been among tax reforms implemented by it in recent years. The government’s overall track record has been mixed so far, however, with tax revenue still accounting for a modest share of the country’s GDP.
Armenia ranked 108th among 184 economies in terms of the quality of tax administration in an annual survey released by the World Bank last October. The Doing Business survey said Armenian firms spend an average of 380 hours a year on dealings with tax and customs officials. The average figure for developed world economies is 176 hours. Corruption and favoritism among tax officials is another serious problem.