Thursday, November 24 2022 10:40
Naira Badalian

Proposed reform to introduce system of mandatory universal income  declaration system for all resident citizens in Armenia cannot ensure  achievement of the declared goals: Tigran Jrbashyan

Proposed reform to introduce system of mandatory universal income  declaration system for all resident citizens in Armenia cannot ensure  achievement of the declared goals: Tigran Jrbashyan

ArmInfo. The proposed reform to introduce a system of mandatory universal income declaration system for all resident citizens in Armenia cannot ensure the achievement of  the declared goals, and rather discredit the idea and lead to an  increase in the inefficiency of tax administration. Tigran Jrbashyan,  Partner, Director of Ameria Management Advisory Services, well-known  economist, noted this on his Facebook page.

It should be reminded that on November 17, the Government of Armenia  approved a legislative initiative providing for the introduction of a  system of mandatory universal income declaration system for all  resident citizens of the Republic of Armenia, in three stages - from  2023-2026. As part of the initiative, it is planned to introduce a  system of social spending or social credits, which are widely used in  world practice. In particular, persons submitting declarations will  be able to reduce tax liabilities in the amount of spending on health  care, education and housing made by them or some members of their  families during the tax year, confirming them with settlement  documents. Thus, as assured in the Ministry of Finance, the system  does not involve expanding the range of taxable income or increasing  the tax burden on citizens and pursues a number of goals. First of  all, this is due to the introduction of a personalized system for  recording the income of individuals so that the state can get to know  its citizens better, identify socially vulnerable groups of citizens  for their more targeted support.  Below is the original text.  Spelling-punctuation and the style of the author are preserved.

<1. There is no  mandatory universal income declaration  anywhere in  the world. In all countries that have implemented any declaration  model, there is a certain level of income below which declaration is  not required. This level is related to the level of efficiency of the  system, since the preparation of declarations, the collection and  analysis of the necessary information require costs that do not  justify the result obtained, moreover the costs are both from the  part of taxpayers and the tax system:  which, by the way, is also  paid by taxpayers: )

2. The implementation of the declaration system requires a  step-by-step approach, based on the system's capabilities to process  significant amounts of data and identify cases of non-declaration or  partial declaration.

3. The income declaration system is primarily based on the  declaration of property as a residual result of income and expenses.

4. In most countries, the declaration of income is carried out with  the possibility of deducting certain expenses (documented), which are  deducted from taxable income (tax base).

Based on the foregoing, I will summarize that in the course of  numerous discussions with the executive and legislative branches of  government (both before and after 2018), it was proposed to carry out  this reform in the following form:

1. Start implementation in stages, and determine the stages of the  reform taking into account both the objective characteristics of the  taxpayer and the amount of income, as well as based on the  capabilities of the tax system to process information. In particular,  at the first stage it is necessary to determine that the obligation  to submit a declaration has:

- owners of real estate, the total value of which exceeds a certain  level of cadastral value (for example, 250 million drams and more);

- holders of bank accounts (demand, deposit, brokerage), the balances  of which exceed a certain level in total (for example, 250 million  drams and more); accounts not in national currency are recalculated  at the official rate at the end of the year for which the declaration  is submitted; securities are translated at the market rate on the  same date;

- owners of legal entities registered in Armenia (LLC, CJSC and other  forms);

- owners of vehicles belonging to the premium class (the list of  brands, models, years of production is published);

- owners of art objects with an estimated total value above a certain  level (for example, above 250 million drams); - owners of watches,  jewelry with a total value above a certain level (for example, above  250 million drams);

- persons who received income during the year for which the  declaration is submitted, which in total before taxation exceeds a  certain amount (for example, more than 50 million drams); this amount  includes both income in the form of wages and income from the  disposal of real estate (rent, sale, etc.), interest on deposits,  dividends and interest on securities, funds from ownership of  property in legal entities, income from the sale art, royalty, etc.;  It is also important to resolve the issue of inherited property.

It is important that the abovementioned criteria operate according to  the principle, that is, at least one criterion, and also if the  total amount is above a certain amount (for example, 500 million  drams), even if no obligation arises under any single criterion.

2. It is necessary to establish those areas and the maximum amount of  expenses that can be deducted from taxable income, in particular:

- documented expenditures on education in any educational  institutions of Armenia (for example, the maximum total level can be  set at 2 million drams);

- documented expenses for medical services in any medical  institutions of Armenia, as well as within the framework of medical  insurance (for example, the maximum level can be set at 2 million  drams);

- documented payments to charitable foundations in Armenia (social,  educational, support for the arts, science, army, etc.), a list of  which can be published in advance for each year (for example, the  maximum amount can be set at 2 million drams) ;

- documented amounts paid in the form of property tax, tax on  dividends.

3. It is also necessary to establish the amount of deductions for the  presence of dependents: children under 18 years of age, parents above  retirement age, persons with disabilities, etc. (for example, in the  amount of the minimum subsistence level per year for each person),  moreover, indicating the data of this person.

4. It is necessary to establish that persons who wish to use the  abovementioned deduction possibilities may submit declarations on a  voluntary basis, regardless of the factors indicated in paragraph 1.

In the future, as this system improves and administration efficiency  increases, these limit values can be reduced. In any case, there will  be a certain level, below which the cost of tax administration will  be greater than the resulting tax effect:

Unfortunately, despite the fact that some of the proposals were  accepted, in particular, on staged implementation, on a number of  deductions, etc., in general, the proposed reform cannot ensure the  achievement of the declared goals, and rather discredits the idea and  leads to an increase in inefficiency tax administration>, Tigran  Jrbashyan wrote. 

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