ARMENIA: GOVERNMENT KICKS OFF TAX, CUSTOMS REFORMS HAROUTIUN KHACHATRIAN 6/11/08

EurasiaNet, NY
June 11 2008

Armenia’s new government has taken the first steps towards a shake-up
of its notoriously corrupt and inefficient tax and customs agencies.

Improving Armenia’s business environment has emerged as a top
priority for Prime Minister Tigran Sarkisian, a former chairman
of Armenia’s Central Bank, and newly inaugurated President Serzh
Sarkisian (no relation to the prime minister). In 2007, the country’s
economy expanded by 13.7 percent, marking the sixth straight year of
double-digit growth. In an effort to maintain a robust growth rate, the
government is banking on an overhaul of the tax and customs sectors,
two areas that Sarkisian has pledged will be "at the center of his
attention," the presidential administration reports.

"In our country, apart from tax and customs revenues, there are
no sources of solving social problems," Sarkisian told an April
18 meeting of the State Customs Committee broadcast by state
television. "Therefore, we must follow the path of self-cleansing."

The push for reform first targeted customs, an area where President
Sarkisian claimed that corruption is "thriving." The Armenian leader
threatened to fire any official who failed to "work honestly."

The opposition press has hailed the criticism – albeit with a dig
at the government for past failures. "Customs officials are ordered
not to take bribes. This means that previously they were ordered to
take them," concluded Haykakan Zhamanak, a newspaper close to the
opposition movement led by ex- President Levon Ter-Petrosian. The
clean-up campaign cannot last for long, the publication argued, since
senior officials, it alleged, will not voluntarily give up the income
bribes provide.

Some entrepreneurs, though, say they have already seen a change. In
particular, implementation of a rule that allows businesspeople to
fill out their own customs declaration has played a role, one leading
member of Armenia’s business community contends. The regulation has
existed since 2001, but was never observed until recently.

"Traditionally, Armenian importers had to go through a long procedure
for presenting customs declarations, and they could not do this without
the participation of customs officials," recounted Gagik Poghossian,
chairman of the Foundation for Small and Medium Businesses, a lobbyist
group. "This used to result in high corruption."

With no need to meet with customs officers, opportunities for bribery
have decreased, he added. At the same time, authorities have encouraged
the use of specialized customs brokers to help businesspeople fill
out their documents correctly, he said.

But the transition has not come problem-free.

One businessman who requested anonymity told EurasiaNet that the
absence of bribes has, in fact, delayed his taking a routine stock of
imported computers through customs. In the past, bribes facilitated
the clearance for lower fees — an excise dodge that this businessman
alleges meant lower retail prices for consumers. The new shipment,
however, comes bribe-free and will be assessed at a higher excise
rate, meaning that it cannot be sold until previous, cheaper stock
is sold out, he said.

Poghossian, though, reports that while most businesspeople in general
are happy with the changes, they remain anxious about whether or not
the government will make sure that the changes are permanent.

Meanwhile, President Serzh Sarkisian’s administration has moved on
to tackle the tax service.

In a May 29 meeting with business representatives, President Sarkisian
affirmed that "the state is on the same side as business." Particular
emphasis was put on the need for an equitable application of taxes,
and the closure of de facto payment loopholes for big business. Members
of the business community have been asked to propose additional areas
for reform or to amend suggested changes.

"If we fail to improve tax administration, we will destroy our
country, our state and our statehood," Prime Minister Tigran Sarkisian
admonished senior tax officials at a June 3 meeting. Tax officials’
style of work must "fundamentally" change to reverse the business
community’s negative attitudes, Sarkisian added. Salary increases for
tax officials and regular training sessions have been slotted to help
in that transition.

Government critics remain skeptical about the motivation for the
overhaul of the tax and customs systems. "My feeling is that these
changes will lead to a situation where, instead of a dozen people
having privileges in the tax and customs spheres, we will have just
two people with such privileges," Hrant Bagratian, who served as
prime minister from 1993-1996 under former President Ter-Petrosian,
said in reference to the current president and prime minister.

Prime Minister Sarkisian reminded officials at his June 3 event that
"[p]arliament members and ministers have no right to be involved
in business," but the extent to which that maxim will be executed
remains in doubt.

Local representatives of anti-corruption watchdog Transparency
International, one of the most outspoken international critics of
the shadowy line between governments and businesses, could not be
reached to comment.

For now, though, one of Armenia’s richest business leaders maintains
that the time has come for change. "We have to forget what was in
the past," oligarch Gagik Tsarukian, leader of the pro-government
Prosperous Armenia Party, a member of Armenia’s ruling coalition, told
reporters after the May 29 meeting with President Sarkisian. "From now
on, everybody should work with proper documents and must pay taxes."

From: Emil Lazarian | Ararat NewsPress