Wednesday, June 12 2019 12:27
Alexandr Avanesov

Deputy Minister: RA Government does not share the opinion that the proposals on a flat income tax system are based on the interests of highly paid beneficiaries

Deputy Minister: RA Government does not share the opinion that the proposals on a flat income tax system are based on the interests of highly paid beneficiaries

ArmInfo. The government of Armenia does not share the opinion that the proposals on the implementation of a flat income tax system are based on the interests of highly paid beneficiaries. This was announced on June 12 at the parliamentary hearings in the Economic Affairs Committee by RA Deputy Minister of Finance Arman Poghosyan.

According to him, with the introduction of the new system, employers will be able to evaluate the labor of their employees, determining the price of labor corresponding to market conditions. In addition, they will have the opportunity to save financial resources, currently directed to the payment of wages. The Deputy Minister noted that from the point of view of social justice and the distribution of budget funds, the progressive scale of taxation has no alternative. This, according to Arman Pogosyan, is an obvious fact; however, given the completely different reality, the idea of introducing a single, flat scale of taxation appeared. Currently, the Deputy Minister continued, in the first group of the scale there are 71.4% of persons paying income tax, in the third - 0.2% or 1320 persons, and in the middle there is a small group of beneficiaries. Thus, according to the Deputy Minister, the progressive income tax scale is used very poorly.  Instead, there are nominally high rates, which are often not declared. Here it should be considered that income tax is calculated along with social benefits paid by both employers and employees. As a result, in comparison with other countries, income tax rates in Armenia were quite high. In developing the package, the government had in mind the solution of three main problems - cancelling the progressive tax scale, an increase in the motivation to declare income, and an increase in the efficiency of the tax model. Despite the fact that as a result of the application of new rates, the country's budget will lose about 95 billion drams, however, by solving the problem of the second and third scales (low declaration and high tax rate), it is planned to collect about 30 billion drams

Earlier, the deputy minister noted that Armenia, most likely, will move to a single, flat, scale of income taxation from January 1, 2020, instead of the previously announced date of September 1, 2019. The matter concerns reducing the income tax to 23% regardless of the amount of income. In a conversation with the correspondent of ArmInfo he stressed that if everything goes according to plan and the draft amendments will be approved by the legislature, then, according to the regulations, the new regulation may take effect from October 2019, but switching to a new system at the last quarter of the year is inappropriate. Thus, as explained by the representative of the Ministry of Finance, the legislation will come into force from the beginning of 2020 simultaneously with the introduction of new excise tax rates and the expansion of the list of excisable goods. Currently, the following taxation scale is in effect in Armenia: 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%. The draft "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 e- draft.am in November 2018, envisaged the transition to a flat personal income tax scale of 23% regardless of salary, from July 1, 2019. The revised draft has set new transition date- September 1, 2019.  As previously reported, according to official estimates, due to the transition to new adjustments, state treasury losses may reach 27 billion drams, but can be offset by a decrease in shadow and an increase in economic and investment activity in the country. Most likely, the dates for the gradual reduction of the flat income tax rate to 20% over 5 years will be postponed for a year. Accordingly, the dates for a gradual return to the previous conditions of the mandatory funded pension system will be revised. Earlier it was planned that from January 2020 the monthly obligatory payments on them by the working citizen would be 3.5% (from 6.5% with state co-financing), from 2021 - 4.5%, and from 2022 -  5%, instead of the 2.5% of the salary and 7.5% of the state treasury established from July 1, 2018. Thus, Armenia will approach the initial regulations by 2023.

It should be also noted that according to the chairman of the NA committee on economic issues Babken Tunyan, the amendments to the Armenian Tax Code will most likely be adopted in the second and final reading at the parliamentary session on June 18-20.

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