KOCHARIAN ORDERS TAX EXEMPTION FOR ARMENIAN FARMERS
By Emil Danielyan

Radio Liberty, Armenia
Aug. 8, 2006

Most Armenian farmers will be exempt from a 20 percent sales tax for
agricultural products to be introduced in 2009 in line with Armenia’s
commitments to the World Trade Organization, President Robert Kocharian
said on Tuesday.

The value-added tax (VAT), levied from sales of all non-agricultural
goods, has long been the Armenian government’s’ single largest source
of revenues. Yerevan pledged to extend it to the agricultural sector
when it was admitted to the WTO in February 2003 after a decade of
membership talks with its more than 140 member states.

With agricultural production making up approximately one fifth of
Armenia’s Gross Domestic Product, a broader enforcement of VAT would
give a sizable boost to the government’s tax revenues. However, most
Armenians living in rural areas are subsistence farmers that already
struggle to eke out a modest living and pay a separate tax on their
land. Very few of them receive can count on government compensation
for hail, droughts and other adverse weather conditions that regularly
wreak havoc on Armenian agriculture.

Kocharian was quoted by his office as telling Agriculture Minister
David Lokian to ensure that farmers whose annual turnover does not
exceed 8 million drams ($20,000) do not have to pay VAT when it comes
into force in January 2009. The vast majority of villagers will almost
certainly not pass this income threshold.

A statement by the presidential press service also said VAT will be
set at an average of 10 percent for less vulnerable rural households
with a turnover of between 8 million and 12 million drams. Other,
wealthier farmers will have to pay the tax in full.

The tax breaks will presumably require corresponding changes to
Armenian tax legislation. It is not clear if they might put Armenia
at loggerheads with longtime WTO members like Australia and Canada
that set specific conditions for its entry into the organization
setting rules on international trade. The Armenian government agreed
in particular to scrap a 10 percent duty on some imported foodstuffs
and limit its agricultural subsidies to just $40 million a year.

Some local manufacturers feared that WTO membership and the resulting
further liberalization of Armenia’s trade regime could reflect
negatively on their businesses. But those fears seem to have been
misplaced so far, with Armenian exports growing more rapidly than
imports between 2003 and 2005.