Prime Minister Sarkisian publicly embarrassed the head of his government’s tax collection agency on Thursday as he continued to decry widespread tax evasion among Armenia’s largest and most lucrative businesses.
Sarkisian effectively accused the State Revenue Committee (SRC) of harassing small and medium-sized enterprises (SMEs) and being far more lenient towards larger firms suspected of underreporting their revenues. He said the SRC has acted against the Armenian government’s strategy of improving tax administration and broader business environment by stepping up controversial inspections of various businesses last year.
A key element of that strategy is minimization of personal contact between tax officials and corporate taxpayers.
“The GDP growth that we have today is primarily conditioned by our correct expansionist macroeconomic policy, and we have yet to improve the microeconomic environment,” Sarkisian said, opening a weekly cabinet session.
“By increasing the number of inspections we don’t improve the environment,” he told ministers. “We only increase the discontent of tens of thousands of enterprises with the state because we don’t fulfill our promises.”
Regular and unexpected inspections of company books are one of the most potent weapons of Armenian tax bodies. Local entrepreneurs have long claimed, usually privately, that tax officials raid their businesses to force them to pay more taxes and/or extort bribes. Few of them take legal action, mindful of the fact that Armenian courts rarely back business in tax disputes with the state.
Sarkisian said the inspections are often not only arbitrary but counterproductive. “The indicators are worrisome,” he said. “The total number of tax inspections conducted by tax bodies in 2009 increased by 82 percent, and yet additional sums raised as a result of those inspections fell by 25 percent.”
SMEs accounted for the bulk of that increase, he said. “This suggests that we are more lenient towards large businesses than small ones,” he added.
Sarkisian then pointedly refused to allow Gagik Khachatrian, the controversial head of the SRC, to respond to his criticism. “I didn’t give you the floor, Mr. Khachatrian,” he snapped when the official persisted in trying to speak up. “I didn’t give you the floor.”
The SRC declined to comment on objections which Khachatrian apparently wanted to voice.
The incident was bound to deal a further blow to Khachatrian’s reputation. The SRC chief has long been dogged by corruption allegations voiced by opposition politicians, media and some businessmen pointing to his extensive business interests. He is believed to have enjoyed President Serzh Sarkisian’s strong backing, at least until now.
The Armenian premier made clear on Thursday that the Ministry of Finance should now have a greater oversight over tax collection. The SRC, which also comprises Armenia’s customs service, is not directly subordinated to the ministry.
Sarkisian slammed the tax agency just one week after pledging to clamp down on large companies grossly underreporting their revenues. He acknowledged that government measures against tax evasion by the wealthiest Armenians taken so far have been ineffective and stressed the need for a tougher government crackdown.
That the number of tax inspections increased in 2009 was confirmed by Tsolvard Vartanian, head of an Armenian association of small traders. “The government should leave small business alone, rather than strangle it,” Vartanian told RFE/RL’s Armenian service. “People are sick and tired of those inspections,” she said.
Several owners of shops and other small businesses refused to comment on the matter, even on condition of anonymity, when contacted by an RFE/RL correspondent. “They are scared,” explained Vartanian. “If they give you an interview today, they will be raided tomorrow.”