Armenia’s leading business associations have criticized the International Monetary Fund for opposing tax breaks for manufactures that were promised by President Serzh Sarkisian earlier this month.
Meeting with members of those associations on April 8, Sarkisian said his government is ready to exempt companies producing “something that is not manufactured in the republic” from profit tax for three or four years. He said the Armenian government could also defer the collection of value-added tax from them in order to spur job creation.
The IMF’s resident representative to Armenia, Guillermo Tolosa, spoke out against such a measure on April 15. He said the IMF is generally opposed to tax privileges and thinks that they would have a negative impact on the already problematic tax collection in the country.
The Armenian Chamber of Commerce, the Union of Industrialists and Manufacturers and the Union of Information Technology Enterprises denounced this stance in a weekend open letter to Tolosa. They said that tax breaks are essential for promoting a knowledge-based economy in Armenia.
Karen Vartanian, chairman of the Union of Information Technology Enterprises, argued on Monday that countries like Ireland, Taiwan or Singapore, which now boast successful hi-tech industries, have resorted to preferential taxation in the past.
“All those countries that considered the hi-tech sector to be their locomotive had serious tax privileges for hi-tech firms,” Vartanian told RFE/RL’s Armenian service. He said the IMF opposition could deal a “blow” to the possibility of similar government support for innovative manufacturing in Armenia.
It is not yet clear whether the Armenian government will press ahead with the tax breaks cited by Sarkisian. The IMF is one of its leading foreign donors. IMF loans help the government finance budget deficits and support the national currency, the dram.
Under Armenian law, the rate of corporate income tax is fixed at 20 percent for all businesses operating in the country.
Many local businesses, especially large and lucrative firms owned by government-linked tycoons, have long been suspected of underreporting their earnings. Proceeds from profit tax accounted for less than 13 percent of the Armenian government’s tax revenues in the first two months of this year.