ArmInfo.Starting from September 1, 2019, Armenia plans to switch to a flat income taxation system, which, regardless of the amount of wages, will be set at 23%. Deputy Minister of Finance of Armenia Arman Poghosyan told ArmInfo correspondent about this.
It should be noted that the draft amendments "On amendments and additions to the Tax Code of the Republic of Armenia", submitted by the Ministry of Finance of Armenia on the single portal of legal acts of e-draft.am in November 2018, provided for the transition from July 1, 2019.
Currently, Armenia has the following taxation scale: those who receive a monthly income of up to 150 thousand drams pay 23%, from 150 thousand to 2 million drams - 28%, and more than 2 million drams - 36%.
As the financial authorities of the country recognize, the problem is that the effective income tax rate of 25.1-25.2% is quite high, and therefore negatively affects the competitiveness of the national economy, export volumes, does not contribute to economic growth and reduce poverty in the country. Moreover, a large tax burden on the income tax line leads to inadequate declaration of real income. As a result, as the Ministry of Finance states, the bulk of the declared income is concentrated in the "weight category up to 150 thousand drams".
At the same time, as the studies of those responsible for the field showed, the tax burden on the profit tax in Armenia is relatively high, which puts obstacles in the way of attracting foreign investments into the country. Taking this into account, including following the world trends, the Armenian government in its program of activities fixed the norm on reducing the tax burden on direct taxes (income tax, incomes of individuals) and a certain increase in indirect (VAT, excise and a number of duties). As the Deputy Finance Minister said, if everything goes according to the plan, from September 1, 2019, the government intends to switch to a flat taxation system on the income tax line - to establish a tax of 23% regardless of the salary. Further, until 2023, the rate will be reduced to 20% (from January 1, 2020 - 22%, from 2021 - at the level of 21%, in 2022 - 20.5%, and from 2023 - 20%). In the case of the transition to new adjustments already in 2019, the tax losses of the state treasury are estimated at 27.5 billion drams. Further, each percent, other things being equal, will cost the state budget 12.5 billion drams.
From 2020 to 2022 the government also offers equal rates of income tax and dividend tax for citizens of Armenia and foreigners, setting them also at the level of 23% (from 20% to 18% income tax and from 10% to 5% dividend tax - Ed.note). The loss in terms of tax revenues of the budget in case of establishing equal conditions for residents and non-residents on the tax on dividends will be 1-1.3 billion drams.
In parallel, the government provides for a gradual return to the previous conditions of the mandatory pension system before 2023. Thus, from January 2020, the monthly mandatory payments on them by the working citizen will be 3.5% (from 6.5% with state co-financing) instead of 2.5% from July 1, 2018 from the size of the salary and 7.5% from state treasury. Already in 2021, working citizens will monthly give 4.5% of their salary to the mandatory pension fund, and from 2022 - all the5%. The Ministry of Finance also proposes to fix that the pensions of residents of individuals are not subject to taxation in Armenia. As the representative of the Armenian Ministry of Finance pointed out, the financial institution is inclined to believe that the current draft, in the form in which it was posted on e-draft.am on January 23, is final. Back in November 2018, when the project was presented in its previous form, it passed a long way of public and departmental discussions, but the process cannot be endless. Otherwise, problems will remain unresolved. "In our opinion, this is the final stage. The document will stay on the portal until February 7, after which it will be summarized and submitted to the government," said Deputy Finance Minister Arman Poghosyan.