Tuesday, February 13 2018 13:45
Naira Badalian

The Ministry of Finance estimates the annual budget losses of Armenia in VAT at  400 billion drams

The Ministry of Finance estimates the annual budget losses of Armenia in VAT at  400 billion drams

ArmInfo. From January 1, 2019, Armenia reduces the threshold of non-taxable annual turnover from 115 million drams ($ 238,000) to 58.35 million drams ($ 120,000), thereby returning to the rules in force until 2015. "The annual shortfall in revenues of the state treasury on the VAT line is estimated at 400 billion drams," Deputy Finance Minister of Armenia David Ananyan told ArmInfo.

According to the deputy minister, in no comparable country, even when the threshold of value added tax is reduced, there are no such favorable conditions. In particular, in neighboring Georgia, the threshold of non- taxable income in dram equivalent is 19 million drams, and the VAT rate- 18%.

At the same time, the scope of the established tax incentives is almost the same here and there. However, due to the difference in the non-taxable threshold, the level of collection of taxes on VAT relative to GDP in Georgia is higher.  At the same time, when studying the tax revenues of the state budget for 2017, the Ministry of Finance found that the level of collected taxes on VAT and income tax is almost identical - about 30%. Meanwhile, 10 years ago the VAT rate was about 75%, and the income tax did not reach the level of 10%. "This comparison does not speak of an increase in the incomes of citizens, but of the fact that our incomes are more taxed than consumption," the deputy minister explained.

As the representative of the Ministry of Finance noted, in 2015 the government went on increasing the maximum non-taxable threshold of annual turnover from 58.35 million drams to 115 million drams experimentally in the hope of changing the tax behavior of economic entities. However, in fact, as Ananyan pointed out, business remained committed to the old policy - not to show its real turnover. "Proceeding from this, it is possible to draw two logical conclusions - either the volumes of the shadow economy are preserved, or the figures declared by the business corresponded to their real turnover, which raises serious doubts," he said. As a result, the financial authorities considered it illogical to leave the preferential threshold.

In addition, according to the idea of the authors, reducing the threshold, eliminates the interest of business entities to split the business into parts, in order to fit in the established framework. "There are many facts of revealing the artificial fragmentation of business," Ananyan said.

As the Minister of Finance Vardan Aramyan emphasized, if Armenia wants to replenish the budget and faces a dilemma - to increase the consumption tax or production, then, according to the generally accepted world canons, it is more correct to tax consumption. "Otherwise, the country's economic potential is weakened. In countries with a high level of tax collection, there is a sufficiently low non-taxable threshold," - the minister said. According to the rough estimates of the Ministry of Finance, raising the VAT by 1 percentage point, it is possible to provide the treasury with an additional 20 billion drams.

Recall that in 2015 the government introduced a package of amendments and additions to the law "On the turnover tax" and related laws, thereby raising the maximum threshold of the annual turnover from 58.35 million drams to 115 million drams. The proposed decision was related to the requirement of mandatory documentation of transactions for the procurement of goods, which became the main reason for discontent of representatives of small and medium-sized businesses.

As reported, if the current law provides for the requirement to document the transaction for the purchase of goods, in which the turnover tax on commercial activities is calculated at a rate of 1%, then the requirement for documentary registration becomes unnecessary. Instead, it was proposed to calculate the 5 percent tax rate for the total turnover, which can be reduced by 4 percent of the total volume of documented transactions for the purchase of goods for direct sale / resale.

However, the law established that the calculated turnover tax for persons engaged in commercial activities can not be less than 1.5% of the taxable object. Former Minister of Economy Karen Chshmarityan then explained that this is an updated version of the simplified tax, in which the amount of tax is calculated at a rate of 5% of the total turnover. The Tax Code of October 2016 established a return to the previous norm.

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