Several Armenian business associations strongly criticized the government on Friday for seeking to raise some key taxes through new legislation tentatively approved by the National Assembly this week.
Echoing statements by opposition leaders and businesspeople, they warned that the new comprehensive Tax Code would stifle economic activity and lead to more tax evasion.
The code calls for higher taxes on fuel, alcohol and tobacco and a lower income threshold for small businesses paying a single “turnover tax.” It also envisages increases in income taxes levied from workers earning between 120,000 and 2 million drams ($250-$4,150) per month.
Their payroll tax rate, currently set at 26 percent, would rise by between 2 and 7 percentage points.
The government pushed the code through the parliament in the first reading on Wednesday despite strong criticism from opposition and even some pro-government lawmakers. The International Monetary Fund gave a positive assessment of the new tax law, saying that it would result in more budgetary revenue badly needed by Armenia.
Samvel Chzmachian, the chairman of the Armenian Association of Banks, insisted, however, the higher tax rates could actually enlarge the informal sector of the domestic economy. “We should on the contrary help companies get out of the shadow, instead of forcing them into the shadow,” he said.
Chzmachian also claimed that the code would discourage foreign investment. “No new commercial bank has been set up in Armenia in the last 10 years,” he said. “Why? Because we have already become less attractive [to foreign investors.]”
Many of the relatively well-paid Armenians affected by the tax rises are employed by the country’s information technology (IT) firms. Not surprisingly, Armenia’s Union of IT Enterprises (UITE) is also very critical of the code.
“We are going against the economic development of our country,” said Hayk Chobanian, the UITE’s deputy director. “This is going to be a huge burden on our sector which we won’t be able to carry.”
Responding to these concerns, Prime Minister Hovik Abrahamian reiterated that the government is open to “reasonable” proposals on amending the Tax Code before it is passed in the final reading in September. “We will do everything to ensure that this document fosters economic development, rather than hampers business,” he assured journalists.
Tigran Jrbashian of the American Chamber of Commerce in Armenia (AmCham) insisted on a complete revision of the controversial legislation. “We are calling on the National Assembly and the government to start across-the-board discussions, rather than discussions on separate articles [of the code,]” he said.