ArmInfo.After the adoption of the Tax Code in 2016, the Armenian government immediately admitted that it is not only imperfect, but also "choking" business from all sides. Nevertheless, due to a number of objective and subjective reasons, reforms in the sphere for Karen Karapetyan's cabinet have come to an end yet, without having begun, at the stage of the "statement of intent".
"Pay taxes and live peacefully," declared the new RA Cabinet of Ministers and responsibly took the baton, focusing primarily on the reform of income tax - as the most "popular" type of tax. And, despite the fact that the British statesman and politician Sir Winston Leonard Spencer-Churchill acknowledged that good taxes do not exist, the Cabinet of Nikol Pashinyan, after lengthy talks about the availability of 8-10 scenarios for the revision of income tax, recently announced two options, while declaring his personal commitment to the second. Pylak Tadevosyan, chairman of the public organization "Protection of taxpayers", told in an interview with ArmInfo that we did not change the "sew on soap" and what the citizens will end up with in the end.
Mr. Tadevosyan, on September 6 this year. Prime Minister Nikol Pashinyan presented two options for changing the income tax rate, stressing that the people should make the choice. The first option proposed by the new Cabinet suggests a 3% reduction in the income tax rate to 20% on wages up to 250 thousand drams, and for those who receive more, the rate from the current 28% and 36% will decrease to 25%. The second scenario of changes is the introduction of a flat scale of taxation, where, regardless of the amount of salary, 23% income tax and profit tax plus dividend tax are also charged at 23% (18% + 5%). In your opinion, which of the presented options is preferable?
In order to answer this question, first of all, it is necessary to understand what purpose the government is setting by initiating these changes: has the government decided to reduce the tax burden of employers, or is it intended to increase the amount of household disposable income. It is also possible that if the government promises, if it approves the second variant - the introduction of a flat income tax scale, from receiving low wages of citizens - the state will continue to collect the payments provided for by the compulsory funded pension system (ONPS), at the same rate - 2.5%, the government tries Do not create a new burden for citizens in the implementation of the system. Or maybe the Cabinet promotes attraction of investments in the republic, offering the formula "23% + 23%", that is, income tax with consolidated tax (profit and dividend taxation). Depending on the intended goal, it will be possible to judge which of the options proposed by the Cabinet for reforming the income tax is preferable.
Today, if we consider proposals, for example, from the point of view of increasing the amount of disposable income of households, it is not clear, for example, whether the tax burden of low-income people is justified at the same level. Many argue that the announced changes are aimed at reducing the "shadow" in the economy and identifying real wages. This, incidentally, does not hide the country's financial authorities. Do you think, in fact, the introduction of an equalization scale will serve these purposes?
And who said that reluctance to register employees is due only to this argument? Maybe employees themselves ask the employer not to register them, so that they will not lose their benefits? And is there even an approximate calculation of how many employees are "sitting in the shadows" and initiating such changes, the question of how many we are solving. Or maybe the price of the issue - to transfer to the "white field" only 5-6% of "shadow business". But even in this case, there is a risk that only a good half of "illegal immigrants" will decide to reveal themselves. In this case, it is not feasible to go for such a large- scale change of the entire system, if it is possible to achieve this goal by applying other instruments.
How viable is the hypothesis that the advantage of the second scenario is also that high-income workers accumulate additional funds, according to the authorities' estimates of about 38.5 billion drams? These funds, as the Cabinet expects, will either enter the economy, or "settle" on deposits in banks, which in turn will lead to a reduction in lending rates. Believe me, the costs of this "estate" will not change much. And then, who can guarantee that the employer will not reduce the amount of the calculated salary and whether there are administrative mechanisms that the employer will not allow to take such measures. Or maybe the employer agreed with the employee that he will pay him a conditional 300 thousand drams, and with the reduction of the income tax rate, he will continue to pay these agreed 300 thousand drams. In my opinion, as soon as the rate is lowered, the employer will go on reviewing the estimated salary. The Prime Minister, speaking of the advantages of a flat tax scale, said that it can stimulate the flow of financial resources into the country. As Pashinyan pointed out, a potential investor wishing to invest in Armenia is primarily interested in - whether there is a flat tax scale in the country. In your opinion, in fact, this aspect is of such fundamental importance when choosing a country for investment and can its revision become a green signal for an investor? The issue of stimulating investment through fiscal policy of the state should be considered in a comprehensive manner. The investor before "investing" in the Armenian economy, will consider different types and regimes of taxation. In this context, the tax on dividends should not be considered a matter of paramount importance: the investor will look at how the issues on depreciation charges are solved in Armenia, for example, in the light of the recent restrictions on reducing the base rate, in some cases, the effective tax rate for profits reaches 30% -35 %. Thus, not knowing whether the non-taxable threshold of personal income will be provided, the turnover tax will be revised, whether tax regimes or benefits for border villages will be preserved, it is unlikely that the investor will be guided only by the rate of profit tax and dividends. Based on the foregoing, today to judge the success of the proposed changes, to assess the first or second option, speaking about their preferences - it's a thankless task. Without a well-defined and clear goal, any changes will not be successful unless the goals, criteria for achieving them are initially clear, as well as the obvious advantages of the new, desired state. So far, we have not been declared a goal. And what we were presented today is just a digital balancing act, where the choice should be guided by sympathy for the given figures: "Choose, figure 20 looks better or figure 23" ?. In this context, I hope that we will still see real public discussions, but not in the format of a written response to a corresponding request from the state department, but in a live controversy. Having announced possible scenarios for changing the rate of income tax, the prime minister, and then the head of the State Revenue Committee, spoke in favor of the second option - the introduction of a flat-scale income tax. Do not you think that this way they direct public opinion? It seems that governments have been changing for many years in Armenia, but approaches, in particular in the tax sphere, do not change. That is, the country's financial authorities are not guided by specific goals, but only perform simple mathematical actions, increasing or decreasing the tax rate. Meanwhile, it is more correct to outline the goal, and only then to look for approaches to it, considering each type of tax in conjunction with other types and regimes affiliated with it. The financial authorities, speaking of possible changes, assured that the reforms will be continued and the reduction of the income tax rate to 20% will be ensured within the next 5 years. According to Pashinyan, the government is ready to commit itself in the coming years to reduce the flat scale of taxation by at least 0.5% per year in order to achieve this 20% threshold in 5 years. What is it - a demonstration of a clear intention of the Cabinet in the future to reduce the rate of income tax or "good wish" in order to buy time and today to achieve what you want? Talking about its intentions for the future 5-year anniversary, the Armenian government, wishing it or not, announces about its program for this period. If this is actually a benchmark for a given period of time, then this implies the intention of a more thorough revision of the RA Tax Code in the long term. In this context, it is reasonable to present approaches and principles for a possible revision of all tax legislation. There can not be a tax reform only on the part of income tax for the next 5 years, since all other types of taxes and tax regimes somehow come into contact with it.. And if the authorities are not ready to talk about a 5-year program, then now it would be more correct to state a specific figure - the rate of income tax for the current year, without touching the topic of future changes in the tax rate, keep the threshold of the non-taxable VAT on turnover at 115 million, which is planned from January 1, 2019 to reduce to 58.35 million. Even Albert Einstein, being a Nobel Laureate said that "the most incomprehensible in the world - a tax scale", so that not having the desire to comprehend the incomprehensible, I would like to know your point of view, as an expert, how should the tax system, in particular In addition to solving fiscal problems, it would be aimed at ensuring social justice, as Nikol Pashinyan said, by the way. I am in favor of a progressive scale of income tax. For example, I am in favor of setting a 23% rate of income tax from wages to 2 million and 36% on wages above this threshold. If the employer decided to pay someone a salary of 4 million for "doing nothing", then why deprive the state of the tax base. On the other hand, let's not forget that the progressive scale of income tax solves certain issues of income redistribution in society. In this context, it may be necessary to compare the issue of income redistribution with property taxes, that is, to consider the issue of tax consolidation, including property tax. Here it is necessary to be guided by the fact that persons who receive income above a certain threshold accumulate their assets in real estate objects or invest them. But, since we are talking about social justice, it is possible to be guided by the experience of a number of Western countries, which establish the non-taxable threshold of personal income, and only in excess of this figure, the tax begins to calculate the income tax on a progressive scale. You can also calculate and tax the cumulative income of the whole family, rather than its individual working member, taking into account all possible and necessary costs of the family. A taxpayer integrity issue can be to stimulate when it - the taxpayer to make sure that the taxes paid by them in the form of any of the services provided by the state (medicine, education) be returned to him. I recall that a few years ago, initiating the process of adoption of the Tax Code, the authors have proclaimed a number of basic principles, involving including limiting the clarity of the document, no fancy wording and its focus on stimulating the business environment and investment. The provisions were fixed in the Concept to documents, but they were successfully forgotten in the development of the Code - they increased the tax burden on income tax and taxed dividends, revised depreciation rates. Meanwhile, to stimulate investment, the tax burden must be competitive in the region, including through indirect taxes, the legislation should be accessible and not be at variance. Thus, if today we want to reform the tax legislation, we must return to the ideas fixed in the Concept to the code of October 2016. In addition, we must guarantee a stable tax environment for business - that is, consolidate mechanisms that will protect a potential investor from frequent changes in tax legislation.