Reducing the informal sector of the Armenian economy is now the only realistic way of increasing tax revenue and thereby boosting government spending, Deputy Finance Minister Armen Alaverdian said on Thursday.
“We have approached a point where a further rise in tax revenue, parallel to the growth of GDP and other indicators, is possible only at the expense of curtailing the shadow economy. The shadow exists in all sectors to varying degrees,” he told a news briefing following a weekly session of Prime Minister Hovik Abrahamian’s cabinet.
The remarks underscored the fact that economic growth in Armenia will fall short of short-term government forecasts. The government lowered its 2014 growth projection to 4 percent from 5 percent from July. The International Monetary Fund and the World Bank said last week that the Armenian economy is on track to expand by only about 2.6 percent mainly because of the fallout from Western economic sanctions against Russia.
Slowing growth appears to have already affected Armenian tax collection in the first half of this year. According the Finance Ministry first-half state revenue amounted to 532.6 billion drams ($1.3 billion), 2.3 percent less than was projected by the government. Alaverdian admitted in early August that the government will struggle to meet its full-year budgetary targets.
Abrahamian declared the fight against tax evasion a top priority immediately after being appointed as prime minister and forming his cabinet last spring. He warned wealthy businesspeople to stop underreporting their earnings or face severe consequences. As part of the same effort, his government went on to enact new and highly controversial taxation rules for small businesses that have triggered angry street protests.
Vahagn Khachatrian, an economist and senior member of the opposition Armenian National Congress (HAK), dismissed Alaverdian’s latest statements. “As long as there is no competition in our economy and life in general and economic laws are not enforced equally, such statements … will ring hollow and be devoid of any economic basis,” he told RFE/RL’s Armenian service (Azatutyun.am).