THE STATE SHOULD PLACE INCOME TAX REVENUES WHERE IT CAN REACH THEM LATER

ArmInfo
2010-02-24 18:36:00

Interview of Vardan Bostanjyan, Chairman of the Armenian Parliamentary
Commission for Economic Affairs, MP from Prosperous Armenia Party,
with ArmInfo news agency

Mr. Bostanjyan, the bill On Income Tax submitted by the government
proposes uniting the income tax and compulsory social payments. The
government proposes 26% income tax, except a number of cases. What
state is the bill currently in and how much grounded are the tax rates?

The governmental bill, which is currently in circulation in parliament,
provides for increasing the income tax to create an Accumulative
Pension Fund. Every employee in Armenia will have to pay 5% of his/her
total income tax to the Fund. The governmental amendments suggest also
extending the list of taxes that now comprises 6. The bill suggests
dividing taxes into state and local ones. The first group will contain
the first 4 taxes and the second group will comprise land and property
taxes as the compulsory ones. The list of non-mandatory taxes will
be added to them. The local self-government will charge and register
local taxes. The non-mandatory taxes will be imposed by the local
self-government in each community alongside with the interest rate
within the upper and lower threshold to be determined by separate
laws. We are still studying it and the bill has not been put on the
agenda of parliament yet. The government has not provided us with
the necessary documents and we have no idea whether the income tax
will grow by 20%, 30% or 40%.

How much do this bill of the government and the bill on introduction
of Motor Third-Party Liability go with worsening of the social state
of Armenian population as a result of the crisis?

You are raising a very acute and important issue. Actually, one
thing is clear anyway. We have been stating for a long time that
Armenia’s population is polarized in terms of incomes, while the
overwhelming majority of our working population does not get the
required remuneration of labor to live worthily. Reduction of these
small earnings as a result of the global crisis, which affected
Armenia as well, has increased the tension even more. However, I
also understand that it is impossible to go on this way, since our
legislation gives no answers to a number of questions, particularly,
in the context of the governmental bill on introduction of Motor
Third-Party Liability in Armenia. Certainly, we understand that auto
insurance is traditionally applied in the whole world for security,
but at the same time we understand that that the amounts required
for annual contribution for these purposes may negatively affect the
under-privileged people, for the essential part of which an old car
is the only means of living. Actually, all these new funds that our
government intends to create should activate the financial market
of Armenia so much to create compensating mechanisms to increase the
population revenues; otherwise, it is even difficult to suppose what
may happen.

May the governments only try to receive funds from the population to
cover its constantly growing foreign debt? It is not clear yet where
and how these funds will be placed, is it?

We cannot yet forecast in what sectors the revenues from the new
accumulative pension funds will be placed. The financial market is not
stable in Armenia and government bonds are considered more guaranteed.

However, the bill submitted to us has no distinct emphases that the
funds received from the citizens will be placed through short-term or
long-term government bonds. That is to say, first of all, we should
fight for investing these funds in the sectors where risks have been
minimized and the growth of these funds will be ensured. Otherwise,
managed by private subjects, these funds may occur in risky zones
and just no longer exist, to put it mildly. You can guess yourself
what will happen in that case.

In February Central Bank of Armenia set up a new mortgage company
to implement the state programme on providing young families with
affordable housing. How much do the excessive terms of provision of
loans meet the goal of the state programme?

I will say directly that such a mortgage contains a number of
stimulating elements. However, for a small population stratum this
mortgage may have a positive effect. That is, the mortgage will allow a
young family with no house to gain some success via certain privations
and torments, and acquire a house. At the same time, the question about
how much the mortgage crediting conditions in Armenia really stimulate
development of families and the birth rate still remains without a
reply. Artificial stimulation of the mortgage market in Armenia may
have not a positive, but negative impact on Armenia’s economy.

WB and IMF experts forecast 2% economic growth in Armenia in 2010.

What do you think of their forecasts?

I think their predictions are quite realistic. If these experts
predicted bigger growth of the economical indices, I could cast doubt
upon them. These predictions are especially realistic, as in January
2010 we registered 2,5% GDP growth in the conditions when its nominal
indices had not reached a high level, and in the conditions when the
GDP fell almost by 15% in the republic in 2009. All this is evidence
of the fact that in Armenia as well as in the whole world the crisis
is gradually stepping back along with all its negative consequences.

In general, this gives us an opportunity to ensure 1,5-2% economic
growth in Armenia in 2010.

What field may become the locomotive of this growth in Armenia? Is
it again the constructions sector, taking into account the project
on construction of the new complex in Noragyugh?

I think the authorities of Armenia are again going to ensure
economical growth in the republic at the expense of the construction
sector. Simply, I have not noticed yet the tendencies which would allow
to suppose serious investments in the sphere of industry or any other
production. And the joint Armenian-Russian project on construction
of the new complex of residential buildings in Noragyugh is only a
part of these tendencies.

Late in 2009 Director of the WB Yerevan Office Aristomene Varoudakis
said that the economy of Armenia needs diversification, which is
impossible without liquidation of oligopolies. What does this loud
statement testify to?

I do not think this statement was too loud, since it was of axiomatic
nature. Monopolies hinder free competition worldwide and everyone knows
that healthy economic growth is possible only in the conditions of free
competition. Therefore, Varoudakis and other European economists have
not discovered anything new. This is known to everyone and to us. At
the same time, the given statement had a political subtext hinting
at the Armenian authorities that they should behave more modestly,
leave development of monopolies for better times, and ensure healthy
competition to overcome the crisis.

Interviewed by David Stepanyan