ARMENIAN GOVERNMENT REJECTS LUXURY TAX BILL
Lilit Gevorgyan
World Markets Research Centre
Global Insight
May 12 2010
The Luxury Tax Bill proposed by Armenian parliamentarian Viktor
Dallakyan last month was rejected by the Armenian government. However,
Prime Minister Tigran Sargsyan has announced that his cabinet should
focus more on effective tax collection from large businesses. He
attacked the so-called parliamentarian businessmen who use their
government contacts to avoid tax payment. Sargsyan pointed out that
Armenian large companies’ tax evasion is harmful for the country’s
small and medium-sized businesses. He blamed the State Revenue
Committee for failure to implement the cabinet’s decision to conduct
more audits of large companies. Sargsyan cited the tax collection
statistic, which revealed that in 2009 tax audits have increased by
82% but the revenues collected as a result of this have fallen by
25%. Moreover, audits carried out at large enterprises have increased
by 30%, a figure dwarfed by a staggering 250% increase when it comes
to small businesses.
Significance:The harsh criticism by technocrat Sargsyan reveals the
weaknesses in Armenian policy administration. The prime minister’s
attack on oligarchs effectively shows that the former is somewhat
powerless to deal with influential business clans that have entrenched
themselves in political power structures. Parliamentary mandate
is one of the favourite choices for oligarchs as it also provides
criminal immunity. The growing power of the oligarchy is risking the
economic and political stability of the country. Most of the large
businesses, especially with government ties, have practically become
untouchable for tax authorities and avoid paying even the minimum
taxes. Although their businesses are growing the oligarchs report
losses as a way of avoiding tax payment. The progressive income
tax is limited at 20%, which leaves the large businesses with a
huge profit. This in turn worsens an already heavy tax burden for
medium and small businesses, many of which are closing down, unable
to survive in the distorted market. The oligarchic structure also
subjects consumers to artificial price increases that the monopolies
conduct for sheer profiteering. Thus in the first quarter of 2010 the
consumer price index has increased by 8.4% in Armenia, while remaining
almost unchanged on the world markets. The oppressive political regime
has closed most of the channels for political change in the country,
hence Armenian citizens are increasingly choosing to vote with their
feet by leaving the country. The UN has warned the Armenian government
of another wave of mass emigration from the country, with an already
shrinking population.