The State Revenue Committee (SRC) has proposed a draft legislative amendment to eliminate the existing provision that allows tax-evading businesses to avoid criminal charges by paying the owed amount. If the SRC’s proposal is approved, economic entities found guilty of violations amounting to 10 million drams ($25,500) or more could face up to three years in prison.
“Tax discipline should be raised to a new level,” SRC head Rustam Badasian told the media after a cabinet meeting on Thursday.
According to Badasian, the current system, which allows offending businesses to avoid punishment beyond paying the owed amount, has disrupted fair competition in the market.
“For example, if two businesses operate in the same market, one fully compliant with tax regulations and the other evading taxes, the SRC might discover and prove only a portion of the evasion. The evading businessman can then pay the amount and avoid criminal responsibility. How fair is this to the compliant taxpayer?” Badasian explained.
However, some business leaders view the SRC’s new proposal as another significant risk for starting a business in Armenia and a potential tool to oppress businesses.
Vahram Mirakian, chairman of the Mantashyants Entrepreneurs Union, the largest Armenian business association with over 600 members, claimed in an interview with RFE/RL’s Armenian Service earlier this week that the SRC has become “the most feared body” in Armenia, surpassing even its predecessor from the previous government.
“Even then [during the previous government] there were some rules of the game. [Former SRC head] Gagik Khachatrian could not have imagined that the SRC would become the repressive structure it is now,” Mirakian said.
He argued that if the SRC’s proposal becomes law, up to a thousand businessmen may end up in prison every year, potentially leading to the closure of hundreds of businesses or causing significant damage to the sector.
“For instance, let’s say a businessman is put in prison for failing to pay 30 million drams in taxes. The businessman then pays the taxes, but still remains imprisoned, because there is a penal code article. The businessman goes to court, and you know how our courts work. A case may take up to five years or, I don’t know, three years, after which it may turn out that the SRC has made an error in its calculations,” Mirakian added.
According to the SRC, more than 930 criminal cases related to tax evasions were initiated in 2023, with nearly half of them eventually terminated. The SRC chairman argued that very few tax-evading businessmen are actually detained.
Doctor of Economics Armen Ktoyan also finds the bill proposed by the SRC to be problematic, questioning whether it will achieve the intended economic benefits.
“I believe this is an unnecessary tightening that sends even more negative signals, while it is questionable whether it will solve any problems,” Ktoyan told RFE/RL’s Armenian Service.
The economist also expressed concern that the stricter measures could lead to abuses, particularly if tax inspectors are not held accountable for incorrect calculations.
“There is nothing to prevent an inspector with a conflict of interest from disrupting a company’s operations on suspicion of tax evasion, potentially benefiting a competing company, with the inspector facing no consequences,” Ktoyan said.
Badasian denied that the new legislative proposal aims to address the shortfall in the budget despite the fact that the government collected about 10 percent less in taxes than planned during the first half of the year.
The SRC-proposed amendment to the Criminal Code is due to be submitted to the National Assembly for approval following public discussions. In the meantime, Badasian has pledged to discuss the changes with business representatives.
It remains unclear what lawmakers think of the proposed changes as parliament is currently in recess.
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