Armenia’s State Revenue Committee (SRC) reported on Tuesday a more than 7 percent rise in the amount of taxes and customs duties collected by it last year.
The increase, which SRC officials have primarily attributed to improved tax collection, helped the Armenian government to cut the state budget deficit.
The Finance Ministry reported last week that the deficit shrank from at least 5.2 percent of GDP in 2016 to 3.3 percent in 2017. It said the government’s overall budgetary expenditures rose by only 3.8 percent. The extra spending was fully channeled into government-funded capital projects.
At 1.16 trillion drams ($2.4 billion), the government’s tax revenue was equivalent to almost 21 percent of GDP. The proportion is quite low by international standards, reflecting the scale of tax evasion in Armenia.
The tax-to-GDP ratio stood at less than 18 percent in 2012. It rose by 0.5 percentage points last year, the SRC said in a statement.
Prime MinisterKaren Karapetian praised the SRC’s performance when he met with the leadership of the national tax and customs service on January 15. “You accomplished a lot in 2017 but you still need to accomplish a lot,” he said.
The current SRC chief, Vartan Harutiunian, is a figure close to Karapetian. Harutiunian has repeatedly pledged to crack down on widespread tax fraud and corruption among tax officials since he was appointed to run the SRC in late 2016.
The International Monetary Fund praised the Armenian authorities’ “efforts to improve tax administration” already in June 2017. It said that they have“contributed to the higher-than-projected revenue collection.”
The improvement has been particularly visible in the Armenian customs service, which has long been reputed to be one of the country’s most corrupt government agencies. Import duties collected by it soared by over 23 percent in 2017, according to the SRC statement.
The tax authorities were also helped by faster economic growth estimated by the Finance Ministry at around 7 percent. Continued growth anticipated by the government should also help the SRC achieve a further sizable increase in tax revenue envisaged by the Armenian state budget for this year.
The SRC can also count on additional revenue resulting from new and controversial tax legislation that took effect on January 1. It raised the income tax rates for Armenians earning 280,000 drams ($580) a month and more as well as excise duties collected from alcohol, fuel and tobacco.
The new Tax Code has been strongly criticized by opposition groups and economic analysts critical of the government. They say that it will push up key consumer prices and encourage private employers to underreport their workers’ wages. Government officials have defended the higher taxes, however, saying that they are needed to boost public spending without increasing Armenia’s debt burden.