Draft law on Universal Income Declaration is incomplete, and its hasty adoption is dangerous: President of Association of Financiers of Armenia

ArmInfo. The universal income declaration system will be launched in Armenia from 2023. The  initiative will be implemented in three stages and by 2025 it will  become mandatory for all citizens who are residents of the Republic  of Armenia. " Once again, we first adopt an incomplete law, and then  look at what will come of it," Soghomon Mirzoyan, President of   Association of Financiers of Armenia, said in an interview with an  ArmInfo correspondent, talking about the risks and timeliness of the  government's initiative.

Any initiative of this scale requires clearly defined goals as well  as measurable indicators of expected results. However, the project of  the normative act submitted to the public does not reveal the stated  goals and objectives of the initiative. <Today, we can only judge the  alleged desire of the government to bring the income of the  population to the legal floor. The desire is positive, but we have  yet to weigh certain risks along the way against possible benefits>,  the expert notes.

Meanwhile, the author of the bill, the Miniser of Finance, states  that the legislative initiative 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 the  population for their more targeted support. "The authorities of  Armenia already today have enough resources to achieve this goal,"  Mirzoyan said. "The government is unlikely to achieve wider access to  information about citizens' incomes within the framework of this  initiative", he notes.

The lack of measurable performance indicators will also make it  impossible to assess the possible volume of income "out of the  shadows" and, in general, the degree of effectiveness of the  initiative. <The universal declaration of income should have been  accompanied by an in-depth analysis of what it would give the state  and society. Today, I do not find effective indicators for the future  in the project. So, we do not know how much the introduction of the  system will cost the state treasury and the same taxpayer. Has a SWOT  analysis been carried out that will make visible to us the strengths  and weaknesses of the project, its opportunities and threats? Without  a deep professional analysis at its core, the project becomes  vulnerable>, Mirzoyan believes.

Whose income can be announced not in a whisper, but publicly?   Soghomon Mirzoyan is convinced that income declaration as such is a  very good idea, and in some cases, it should be mandatory. In  particular, it is in the interests of the state and society to  declare the income of certain categories of citizens. However, it is  one thing to require the disclosure of the income of a certain group  of citizens, and quite another to switch to a universal declaration  of income.  "It is still too early for Armenia to introduce the  Universal Declaration of Income system," the financier believes. And  this is due, first of all, to the low level of financial literacy and  awareness of the population, even if, according to the idea of the  Ministry of Finance, the declaration should first be filled in  automatically by the tax authority based on the information at its  disposal, and the declarant will only need to make in the document of  amendments and additions. <Imagine a pensioner or an ordinary peasant  who keeps track of his own income and expenses. It is unlikely that  the tax office has information about all the income and expenses of  the villagers. And also imagine that he will have to do this without  the right to make a mistake, since the authors of the bill threaten  to apply sanctions against those who incorrectly or did not fill out  the declaration on time. And, even if we assume that the introduction  of the system does not imply an increase in the tax burden on  citizens, the initiative promises additional costs to those citizens  who may not be able to make the declaration themselves, and it can be  said for sure that there will be many such cases>, Mirzoyan  emphasizes.

Do vague motivational mechanisms motivate successful implementation  of the system?

According to the Ministry of Finance, the initiative contains a very  important motivational component in the form of the introduction of a  system of social spending, 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.

Despite the fact that the reform is perhaps one of the most ambitious  and concerns the entire population of the country, even a few days  before its launch, the financial authorities are not ready to specify  what the motivational toolkit will be - the project proposes a  solution of not so secondary important issues, such as clarification  of the directions of social spending, the number and range of family  members the expenses of which will be taken into account during the  tax deduction, to be left to the future  or rather, at the discretion  of the government.

<Will the motivational mechanisms in the form of introducing a system  of social spending work? We don't know. Again, the project is  incomplete due to the lack of figures, expert analysis, which will  allow us to conclude whether the possible benefit for the state will  prevail over those costs, investments that the treasury of the  republic, that is, the taxpayer himself, will have to fork out under  the promised system motivations. And in the absence of such  measurable indicators, all this is like a system of good wishes>, the  financier insists.  But we will not do it immediately, but in stages:  

In fact, such risks could have been avoided, or at least minimized,  if the authorities had not rushed to introduce the system -  immediately and for everyone. According to him, a real step-by-step  approach could be expressed in the fact that the financial  authorities of the country would first determine the risk groups and  start with those whose non-declaration of income is fraught with  certain, predictable risks for the state, the expert notes. And to  oblige an ordinary pensioner, a villager to submit an income  declaration, will become an additional administrative burden and  expense for the state and the citizen, rather than a possible benefit  for the parties, Mirzoyan believes.

<Of course, it was necessary to develop an algorithm of actions, a  strict sequence of steps that could negate many potential risks.   Meanwhile, we once again adopt a law, and then we wait to see what  will come out of it. A vivid example is the law "On Mandatory Funded  Pension", and, unfortunately, we have plenty of such examples - a law  is being adopted and in the process we are trying to adapt the public  to it. And what if unexpected, more serious risks arise in the  process of its implementation?  Each law, first of all, should be  based on calculations and justifications. This project is deprived of  these components, which is very dangerous and fraught with  consequences>, the President of Association of Financiers of Armenia  concluded.