ArmInfo. Representatives of the catering sector are beating the alarm - the Armenian government, within the framework of measures to cover the "tax gap", and in violation of previously reached agreements, initiates tax changes.
As a result of the proposed reforms, the tax burden for the restaurant business will increase significantly, which, according to representatives of the field, will become a stranglehold on the neck of the business. Ashot Barseghyan, Chairman of the Armenian Restaurants Association, an expert in the field of public catering, told ArmInfo how the restaurant business survived the pandemic and the war in Artsakh, and what consequences the government's initiative will turn into.
- Mr. Barseghyan, how do you assess the pace of restoration of the restaurant business in Armenia? Can we say that business has returned to the pre-pandemic level?
- The restaurant business in Armenia is recovering very sluggishly. The government has not taken measures that would help increase the flow of tourists to Armenia. In particular, the question is as follows: Armenia is a small country and, if desired, it could very quickly and very effectively organize full vaccination of the population - becoming the first country with a fully vaccinated population. Then this fact could be very competently used for marketing purposes, attracting hundreds of thousands of tourists to the republic, including Russian ones. In addition, the travel industry today operates without a "state leader" - there is a department in the Ministry of Economy of Armenia that oversees tourism, but it functions without a head. That is, no one is in charge of this very important area for the country's economy, which naturally impacts the effectiveness of this department. As a result, we do not see any functional changes and practical steps aimed at government assistance, which extremely hinders the recovery of business. The restaurant business is still working at 50-60% of the pre-pandemic level - the tourist flow has not recovered, and the event industry has not recovered either, since people do not hold mass events or organize them in a small scale.
-- And yet, how would you assess the level and effectiveness of business support from the point of view of last year's government anti-crisis measures? Were you able to maintain jobs, and if not, how many percent do you estimate they declined during 2020, given the collapse of the tourism industry?
- I assess the level of support for business from the government as rather low, the measures it carried out were mostly declarative and populist. Thus, out of two dozen support programs adopted by the government, only two measures were useful for the industry, and then only with a stretch. The first is a program for providing interest-free loans during the pandemic, within which, in fact, businesses simply replaced their commercial loans with soft loans from the state. In fact, this tool did not help the business, which was in need, and just replaced financial obligations for those who were healthy. The second program concerned the subsidizing of social benefits to industry workers for 6 months. In the meantime, the entire social burden was taken over by the business - for a couple of months the sector was on "forced leave", workers were not fired en masse, but their wages, albeit in a truncated form, were paid, which speaks more of the social responsibility of the business itself and fears of losing staff.
According to my subjective estimates, about 200 large and medium-sized catering enterprises have closed in the country, out of 50 thousand people employed in the field, about 5 thousand jobs have been closed. Then, when they began to recruit, it turned out that there was a shortage of workers, since an outflow of labor was recorded. At this stage, the pace of recovery is still very low, but we hope for a more intensive recovery, in case of a competent and tourism-oriented government policy.
- In your opinion, what is the rough estimate of the share of foreign tourists in the total revenue of the restaurant business? Can we assume that there is no need to talk about a full recovery of income until the tourist flow to the country is restored?
- The total flow of foreign tourists in 2019 was about 30-40% of our turnover, which is very significant for our industry. The government should try to fully restore the tourist flow. I want to again stress the vaccination problem that I talked about at the beginning.
- How do you assess the government's initiative to transfer the catering sector to general taxation system? Are we now faced with a dangerous policy from the government: the prevalence of fiscal goals over the goals of development and economic recovery?
- The initiative of the Ministry of Economy to transfer the catering industry to a general taxation system will be disastrous for the industry - this will significantly, I think, even three times, increase the tax burden on the restaurant business, which will greatly affect the operation of the industry. A significant part of those employed in the field will lose their earnings. Back in 2018, when the financial authorities of Armenia started talking about a 10% turnover tax for restaurateurs, we managed to convince them, arguing that this would lead to a significant increase in our expenses. Restaurateurs have proposed setting a threshold for turnover tax at a rate of no more than 3%. As a result, a compromise decision was made - the license tax for restaurants (tax per square meter) was replaced by a 6% sales tax, with the possibility of a tax deduction of 3% of the documented expenses, but not less than 4% of the turnover. From January 1, 2019, the tax burden was supposed to increase to 8%, and from 2020 to 10% of turnover. But during the discussions in the government, an agreement was reached - the authorities will not interfere for several years and so far the sector has been working with a 6% turnover tax. Today they are talking about the complete elimination of the turnover tax and the transition to value added tax. I understand that the industry should move towards VAT, but not today and not in a year or two, but in 10 years, given our pace of recovery. This measure will simply kill business, and the government, in turn, will not achieve the stated goal of reducing tax arrears, since by making such drastic changes for the sake of immediate benefit, it risks losing much more in the medium and long term.