Armenian government intends to make employers increase salaries  through tax rates revision

ArmInfo.The main task of the Armenian government is to encourage high salary payments. On  October 24, the Acting Prime Minister of the Republic of Armenia Nikol Pashinyan said this from the rostrum of the National Assembly of Armenia.

According to him, even if all tax payments from the salary of a  citizen who receives for example 100 thousand drams per month are  excluded, all the same it will be a small amount.

To solve this problem, a draft of the new Tax Code is being developed  currently, aimed at encouraging employers to pay higher wages. The  current legislation does not allow this yet. For this reason, a  salary increase of 1,000 drams was presented by the former  authorities as a gesture of goodwill. The new authorities of the  country intend to create conditions not only for opening of new jobs,  but also for obtaining salaries that correspond to the contribution  of employees to the development of production. In particular, as  Nikol Pashinyan noted, at present the tax rate on profits and  dividend tax is much lower than the income tax rate. This allows the  employer to issue lower wages, and often to give them "black cash" in  envelopes. Now, based on a study of the situation and international  experience, it is proposed to introduce a flat income tax scale,  which will force the employer to issue higher salaries.

According to the concept, the government proposes that a flat income  tax rate at 23% should be set for everyone, regardless of the salary.  The government also offers equal rates of income tax and dividend tax  for citizens of Armenia and foreigners, setting them at the level of  23%. Within 5 years, the government intends to reduce the income tax  rate to 20%.  Earlier in a conversation with the correspondent of  ArmInfo Finance Minister Atom Janjughazyan noted that the reduction  of income tax in the short term contains fiscal risks. Today, as the  head of the Ministry of Finance informed, the option of reducing the  rate from the current 23, 28 and 36% to 20 and 25% is being  considered, in particular. In this case, the budget losses will  amount to 45-46 billion drams per 600 thousand workers. On this  basis, when initiating a rate reduction, the Ministry of Finance must  be sure that losses for the state budget will be compensated by funds  derived from the "shadow". Otherwise, as the minister noted, Armenia  will be forced to increase the debt burden to cover the budget  deficit, which is extremely unacceptable. Thus, according to the  expert, the reduction of income tax in this fiscal year is unlikely.

The issue of reducing the tax burden was acute when the new Tax Code  was adopted in 2016, but then, under pressure from the IMF and the  World Bank, the new government headed by Karapetyan adopted a  previously prepared version of the document through the parliament.  The political opposition also raised this issue. Then the Yelk  opposition bloc proposed to revise the income tax scale in the Tax  Code, adding it with another "intermediate scale" for workers  receiving wages in the range from 150 thousand to 300 thousand drams,  fixing the rate of 26%. "The proposed changes will have a negative  impact, including in terms of ensuring the revenue side of the state  budget," then Finance Minister Vardan Aramyan said in February. He  considered this proposal unjustified, since it does not provide for  mechanisms to compensate for budget losses.