Describing the current levels of taxes as “heavy” for citizens and the tax legislation as “bad and encouraging tax evasion”, Armenian Prime Minister Nikol Pashinian on Thursday suggested at least two options to tackle the issue.
In a live Facebook broadcast following today’s government session Pashinian advocated a flat income tax system that he said would be fair to all and would close loopholes for employers to evade taxes, while stimulating the growth of salaries.
Currently Armenia has a three-tier income tax system, implying that workers who get a monthly salary of up to 150,000 drams (about $310) pay an income tax at the level of 23 percent, those whose monthly salaries are in the range between 150,000 and 2 million (about 4,100) drams pay a 25-percent tax and those whose salaries are higher than that are taxed 36 percent on anything that is above 2 million drams.
According to Pashinian, the government initially considered about a dozen variants of reforming the tax legislation, but eventually arrived at just two options, with the first being the introduction of a two-tier income tax system. Under this system, citizens receiving a monthly salary of up to 250,000 drams (about $515) would be taxed 23 percent, while those receiving higher salaries would be taxed 25 percent of their income.
“This system has its logic, which is social justice. Those who will get more will pay more. On the other hand, in that case employers would still not be interested in raising salaries of their employees,” Pashinian said.
In contrast, according to the prime minister, the introduction of a flat income tax of 23 percent for all, given that it is equivalent to the sum of the profit tax and dividend tax, would help solve several problems, including simplification of tax laws for potential foreign investors.
Pashinian said that the government hopes the additional revenues of citizens enabled by this reform would return to the country’s economy and will, in particular, help develop small and medium-sized business.
At the same time, Pashinian said that he also backed the idea of the income tax being cut by at least 0.5 percentage points every year. “In five years or so our income tax rate would be at 20 percent,” said the prime minister, adding that in his opinion this would provide an additional impetus to economic growth.
The prime minister also announced plans to lower profit and dividend taxes for non-resident investors to make them equal to those paid by local investors. “We think that we should not discriminate between resident and non-resident investors for the simple reason that among non-resident entrepreneurs there are many Diaspora Armenians… Besides, we think that such discrimination between foreign and local investors is not a good message in terms of improving the investment environment,” he said.
Pashinian said his government is ready to hear proposals from all stakeholders and promised to continue to present to the public all ideas that his cabinet has in terms of tax reforms.