By Emil Danielyan
The Armenian government reported on Thursday a 21 percent increase in the amount of various taxes collected in January, putting it on track to execute its record-high budget for this year.
The Finance and Economy Ministry said the government’s tax revenues, the main source of its budgetary expenditures, totaled 28 billion drams ($80 million), or 6.4 percent of the annual target.
Armenia’s budget for 2007 calls for an almost 16 percent increase in government expenditures projected at 558.7 billion drams ($1.6 billion). President Robert Kocharian has repeatedly warned the tax authorities to meet the target, openly questioning their commitment to tackling widespread tax evasion in earnest.
The structure of the January tax revenues suggests that the State Tax Service (STS) has still a long way to go in addressing the problem. According to figures released by the Finance Ministry, the STS boosted those revenues mainly thanks to the collection of value-added tax (VAT) that accounted for almost 57 percent of the monthly total. Most of the VAT proceeds came from imported goods and equipment.
By contrast, corporate profit tax, arguably the number one source of tax evasion, generated a meager 12.5 percent of the January revenues. Moreover, proceeds from the flat tax, set at 20 percent, slightly fell in absolute terms from to the same period last year.
Profit tax collection improved considerably in the course of last year, jumping by 40 percent to 65.3 billion drams ($185 million). The figure is still extremely low given the scale of economic activity in Armenia.
Armenian entrepreneurs are believed to routinely underreport their earnings in order to avoid profit tax as well as income and social security taxes levied from their employees. Some have gone as far as to claim losses.
Particularly eye-catching are modest profits posted by some of the country’s wealthiest businessmen close to the government and Kocharian in particular. For example, the largest of the businesses owned by “oligarch” Gagik Tsarukian was only 84th in the STS’s latest rankings of top corporate taxpayers, having paid only 500 million drams ($1.4 million) in various taxes in 2006.
The proportion of tax revenues in Armenia’s Gross Domestic Product is one of the lowest in the Soviet Union.