Armenia’s government moved on Thursday to cut personal income tax which was mostly raised as recently as three months ago.
Recent amendments to the Armenian Tax Code raised from 26 percent to 28 percent the tax rate for monthly incomes ranging from 150,000 to 2 million drams ($310-$4,150). The rate for those earning more was set at 36 percent. The amended code at the same time cut the tax rate from 24.4 percent to 23 percent for workers making less than 150,000 drams a month.
Opposition groups condemned this and other tax rises which took effect on January 1, saying that they will hurt the middle class and push up key consumer prices. In February, the Armenian parliament voted down an opposition bill that would repeal the higher tax rates.
Government officials insisted until now that the more progressive income tax will put a heavier financial burden only on high-income individuals. They argued that 90 percent of employed Armenians will not have any additional sums deducted from their wages because of a complex method of income calculation.
Outgoing Prime Minister Karen Karapetian unexpectedly signaled a policy change as he opened a weekly cabinet meeting in Yerevan. “Our preliminary estimates show that it is necessary to address the issue of reducing the income tax rate,” he told ministers.
Karapetian said that a tax cut would increase Armenians’ real incomes and help companies attract more skilled workers. He stressed that such a measure must be accompanied by a “substantial” toughening of the government’s declared fight against tax evasion.
Karapetian instructed the ministers of finance and economic development and the head of the State Revenue Committee (SRC) look into the matter and submit relevant “proposals” within the next 10 days.
The SRC claims to have already improved tax administration over the past year. The total amount of taxes and customs duties collected by the government agency rose by more than 7 percent last year. The SRC reported a further rise in tax revenue in the first two months of this year.
The International Monetary Fund praised the Armenian government’s “efforts to improve tax administration” already in June 2017. It said that they have “contributed to the higher-than-projected revenue collection.”