Armenia`s financial authorities intend to gradually abandon the program for the return of income tax within the framework of mortgage lending

ArmInfo. The financial authorities of Armenia, represented by the Ministry of Finance of  Armenia, are in favor of the gradual abandonment of the income tax refund program within the framework of mortgage lending in Yerevan. Corresponding amendments to the tax code of Armenia were approved at a government meeting on August 12.

As the Minister of Finance of Armenia Tigran Khachatryan noted, this initiative is aimed at equal territorial development through the income tax return program and giving it a more clear social character.  As a result, according to Khachatryan, the benefit under  the program will be canceled from July 1, 2022.  From this moment on, income tax will not be returned to those citizens who decide to buy an apartment on a loan in the 1st zone of Yerevan (center). From January 1, 2023, the income tax refund will be canceled for those who purchased housing in the 2nd zone, from July 1, 2023 in the 3rd zone.  From January 1, 2025, the benefit will be canceled throughout the capital.

The proposed restrictions will apply to individual and multi-unit residential buildings built on the basis of building permits issued after January 1, 2022.

As the head of the Ministry of Finance noted, the program for the return of income tax within the framework of mortgage lending was introduced more than 5 years ago. In the past two years, the number of its beneficiaries has increased dramatically. So, if in 2015-2017 the beneficiaries of the program were 800 people, in 2018-2019 - about 2000, and in 2020 - already 5200. Now the total number of beneficiaries exceeds 17 thousand people, of which only 7% are in the regions. By the end of this year, the number of beneficiaries will reach 20 thousand people.

Accordingly, budgetary allocations have also increased. Thus, if in 2016-2017 the annual financing of the program from the state treasury increased by about 1 billion drams, then in 2019 the growth amounted to 3.3 billion drams, and in 2020 the amount reached 5.4 billion drams, and in the previous year - 13.3 billion drams. By the end of 2021, allocations will amount to about 21 billion drams. In particular, in 2015, the borrowers (co-borrowers) under the program were reimbursed in the amount of 273.9 million drams, in 2016 - 1.3 billion drams, in 2017 - 2.4 billion drams, in 2018 - 4, 7 billion drams, in 2019 - 7.9 billion drams, in 2020- 13.3 billion drams, and in the first half of 2021 - 9.7 billion drams.

To recall, in 2017, the financial authorities of Armenia stated that the legal norm, in force since November 2014, had the goal of creating a stable and effective demand in the field, as well as solving social problems.  There were no restrictions on the number of  such loans or the social status of the buyer. As a result, it was noted that the social component was negligible. The Ministry of Finance monitoring revealed that more often the legal norm is used by those who do not have the goal of solving social problems, but only enrich themselves by acquiring another real estate. At the same time, the Armenian government announced that if there is a desire to stimulate the economy by injecting funds from the state budget, then the real estate market is not the direction of the republic's economy that requires investments from the state as a priority.  As a result,  the authorities decided to focus resources on maintaining exclusively the social component of the program - the legal norm should support those who actually solve their social issues. In order to mitigate such risks, the Government decided to go for a number of restrictions. In particular, from January 1, 2018, interest would not be compensated for transactions exceeding 55 million drams (about 115 thousand dollars). The amount, according to the authors of the document, is equivalent to the cost of an apartment of 135-140 square meters in the center of Yerevan. The second limitation concerned the  amount of income tax, which the state returns to the "mortgagee" - within the framework of one transaction no more than 1.5 million drams per quarter, regardless of the number of borrowers or co-borrowers. For a young family, if a couple acts as a borrower and  a co-borrower, this means that the monthly maximum amount of income tax in the form of a return from the state treasury, which they can claim, is 500 thousand AMD (in proportion to their monthly joint income of 1.6 or 1.7 million drams). And, thirdly, it was decided that from January 1, 2018, the preferential program can be used once, whether it is a borrower or a co- borrower.

In 2019, both the former Minister of Finance of Armenia Vardan  Aramyan and the then Chairman of the State Revenue Committee David  Ananyan spoke in favor of revising the program. Vardan Aramyan stated  that instead of stimulating the non-exported sector of the economy,  in particular, the construction sector, the country's authorities  should take very unpopular steps in order to ensure long-term  economic growth. In particular, programs that significantly  contribute to housing development need to be rethought. According to  Aramyan, if the program is given a social component, then its maximum  threshold should be comparable to the maximum cost of purchased  housing within the framework of the Affordable Housing for Young  Families program of AMD 30 million in case of buying an apartment in  the primary market (from the developer), and in the secondary - 25  million AMD. Ananyan spoke in favor of reducing the cost of one  transaction from the current 55 million to 35 million drams. "If it  pursues a social goal, then the instrument has a right to exist, and  if it serves the purpose of supporting business, then I, as an  economist, do not consider it justified and this is not an area that  should be supported by the state. There are export-oriented business  areas, much more the state can effectively invest, "he said.