Data from the Armenian Ministry of Finance show that this resulted, in large measure, from an unprecedented 30 percent surge in proceeds from corporate profit tax. They accounted for 18 percent of the tax total, up from about 14 percent registered last year.
The ministry reported far more modest gains in the collection of other major taxes by the State Revenue Committee (SRC). In particular, first-half revenues from value-added tax (VAT), the single largest source of budgetary funds, rose by only 6 percent to 151 billion drams.
Profit tax has traditionally generated a fraction of Armenian tax revenues, a fact reflecting widespread tax evasion among local businesses. Earnings posted by large and lucrative firms owned by government-linked wealthy entrepreneurs have been particularly modest. Their contribution to the sharp rise in profit tax revenues was not immediately clear.
In a May 26 speech, President Serzh Sarkisian said tycoons must stop evading taxes and obstructing competition in major sectors of the Armenian economy dominated by them. He did not name any of them.
Sarkisian told the SRC leadership the next day to significantly boost state revenues and at the same time make tax administration “more acceptable, fair, equal, uncomplicated and friendly” to businesses. “It is a very difficult task indeed, but I have no doubt that it is doable,” he said.
The tax revenues were equivalent to just over 17 percent of Armenia’s Gross Domestic Product (GDP) last year, one of the lowest proportions in the former Soviet Union. Citing this figure, a senior official from the International Monetary Fund said earlier this year that tax collection in the country remains poor.
The Armenian government claims to have stepped up its efforts to tackle tax fraud. Sarkisian’s National Security Council approved a three-year plan of relevant actions in late April.
Those efforts are still hampered by endemic corruption within the SRC and especially its customs service. Also, small and medium-sized firms continue to accuse tax authorities of arbitrary treatment.
Improving tax collection helped the government to cut its budget deficit to 6.6 billion drams in the first half. The deficit had been projected to reach 56.3 billion drams.
With the government spending more than 10 percent less than was envisaged by its 2011 budget in this period, the deficit should widen in the coming months.