Armenians earning more than a 150,000 drams ($310) a month will pay higher income taxes under new and comprehensive tax legislation that will come into effect in January.
The Tax Code was passed by the Armenian parliament in 2016 amid strong criticism from the opposition and even some pro-government lawmakers. It calls, among other things, for higher taxes on personal income, fuel, alcohol and tobacco. Critics said this will suppress economic activity and lead to more tax evasion.
The government denied those claims. The International Monetary Fund also strongly supported the code, saying that it will improve tax administration and lead to a badly needed increase in public spending.
In particular, the 800-page code raised from 26 percent to 28 percent the income tax rate for Armenians making between 150,000 and 2 million drams a month. The tax rate for those having higher income is set at 36 percent.
According to the State Revenue Committee (SRC), the tax rises will affect 30 percent of the national workforce. In a statement to RFE/RL’s Armenian service (Azatutyun.am), the SRC emphasized that the tax rate for the other Armenian workers will be cut to 23 percent.
Vahagn Khachatrian, an economist affiliated with the opposition Armenian National Congress (HAK), again criticized these changes on Friday, saying that they will encourage private employers, who pay the bulk of the payroll tax, to underreport their workers’ wages.
Khachatrian also alleged that the Armenian authorities are keen to stifle the middle class and even cause it to shrink in size. “This is politically motivated, he said, adding that high earners pose a threat to the government’s hold on power.
Khachatrian noted that the year 2018 will also see the full entry into force of a Western-backed reform of the national pension system. It will require all employees born after 1973 to pay a higher pension tax.
The government’s aggregate tax revenue has grown steadily over the past decade. Still, it was equivalent to just over 21 percent of GDP in 2016, a modest proportion highlighting widespread tax evasion and income disparity in Armenia. The government has pledged to raise that ratio to 23.5 percent by 2022 through a major reform of tax administration.