ArmInfo. The Ministry of Finance of Armenia proposes a gradual phasing out of the income tax refund system for mortgage loans throughout Armenia. The draft law is submitted for public discussion on a single portal of legal acts.
Recall that in November 2021, the country's parliament adopted a government bill on the gradual abolition of this system in Yerevan. It was noted that the benefit under the program will be canceled from July 1, 2022, and from that moment on, income tax will not be returned to those citizens who decided to purchase an apartment on a loan in the 1st zone of Yerevan (center) and received a loan for it after this period. 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. Then a 1.5-year break is offered. For the rest of the city of Yerevan, a precondition for obtaining a mortgage loan is until January 1, 2025.
As noted in the explanatory note to the document, the introduction of the income tax refund system was intended to help revive the construction sector of the economy by increasing demand for apartments and individual houses. In this regard, taking into account the fact that the construction sector is one of the main sectors of the RA economy, it was supposed to ensure economic growth in the sector through the use of this instrument and compensate for the losses of the state budget due to the return of income tax through taxes received from economic growth.
However, the Ministry of Finance notes that housing construction is considered a profitable industry for private investors around the world, and in this case, the use of the limited capacity of the state budget to support economic entities engaged in housing construction is not justified from the point of view of the policy of prioritizing budget expenditures.
According to the data of the Ministry of Finance, in 2015, the borrowers (co-borrowers) under the program were returned an 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, in 2021 - 22.6 billion drams, in 2022 - 36.5 billion drams, which means that the expenditures made from the state budget within the framework of the income tax refund system are significant and increase every year, resulting in a large burden on the state budget. In addition, the number of users of the system has increased in recent years. Moreover, the existence of the system in its current form means further active assistance to the development of two non-export sectors - financial and construction - through subsidies from the state budget, which is not in line with the policy adopted by the RA government to promote the export sector of the economy. The finance department also emphasizes that the income tax refund system, in fact, should be understood not as a tax benefit provided to the beneficiaries of the system, but as a budgetary support provided to the beneficiaries within the framework of social policy.
As a result, the project proposes a phase-out of the system. In particular, On January 1, 2027, the benefit will be canceled if the property is located in the Aragatsotn, Ararat, Armavir and Kotayk regions adjacent to the city of Yerevan, with the exception of real estate located or under construction in the border settlements of these regions included in the approved list government; from January 1, 2029, if the property is located in other regions, with the exception of real estate located or under construction in border settlements included in the list approved by the Government.
The program has been operating since November 2014: citizens who purchase housing on mortgage lending in the primary market (apartments in new buildings or new private houses) receive income tax refunds in the amount of interest on mortgages. In 2017, the financial authorities of Armenia stated that the legal norm was aimed at creating a stable and effective demand in the sphere, as well as solving social problems. As a result, it was noted that the social component turned out to be negligible. The Ministry of Finance monitoring revealed that those who do not have the goal of solving social problems, but simply enrich themselves by acquiring another real estate, use the legal norm more often. As a result, from January 1, 2018, interest is not compensated for a transaction exceeding 55 million drams. The second limitation concerned the amount of income tax that the state returns to the "mortgagor" - 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 the couple acts as a borrower and co-borrower, this means that the monthly maximum amount of income tax in the form of a return from the state treasury that they can claim is 500 thousand drams (proportionate 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.
