Wednesday, September 19 2018 18:58

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.