The International Monetary Fund reaffirmed on Wednesday its support for a new and comprehensive tax law that has been enacted by Armenia’s government over strong objections voiced by the opposition and some business leaders.
Teresa Daban Sanchez, the head of the IMF office in Yerevan, insisted that the Tax Code envisaging higher rates of some taxes will allow the Armenian government to ensure a badly needed increase in public spending. It will also improve tax administration in the country, she said.
“This country needs better schools, better roads, better governance, and everybody has to contribute to that,” Daban Sanchez told RFE/RL’s Armenian service (Azatutyun.am) in an interview.
“There is a lack of capital investment and [adequate] infrastructure. You can’t develop the country without improving it,” she said, calling the new code a “very important opportunity” to do that.
The code will replace all other Armenian tax laws that have been enforced until now. It calls for higher taxes on fuel, alcohol and tobacco and a lower income threshold for small businesses paying a single “turnover tax.”
More importantly, the code also increases income taxes levied from workers earning between 120,000 and 2 million drams ($250-$4,150) per month. Their payroll tax rate, currently set at 26 percent, will rise by between 2 and 7 percentage points.
The government faced fierce resistance from not only opposition but also some pro-government lawmakers when it pushed the 700-page legislation through the parliament in the first reading on June 15.
The parliamentary critics claimed that the higher taxes would seriously hurt many businesses and encourage tax evasion among them. Several Armenian business associations publicly added their voice to the criticism.
Responding to these concerns, Prime Minister Hovik Abrahamian has promised that the government will consider “reasonable” proposals on amending the Tax Code before it is passed in the final reading in September.
Daban Sanchez insisted that the higher taxes will not lead to more tax fraud and will improve the investment climate. The new code should also make tax collection less arbitrary by “reducing the discretion of tax inspectors” and “creating a more transparent environment,” she said.
The Armenian government’s tax revenue has increased considerably in the past several years. But it is still equivalent to only one-fifth of Gross Domestic Product, a low figure even by ex-Soviet standards. The modest ratio results, in large measure, from widespread tax evasion, corruption and privileged treatment of entrepreneurs linked to the government.
The IMF and the World Bank have long pressed the authorities in Yerevan to boost their modest tax revenue.