ArmInfo.The Ministry of Finance of Armenia is convinced that even after a double increase in the turnover tax rate, the tax burden of the general taxation system will significantly exceed the burden of the turnover tax, Deputy Minister of Finance of Armenia Arman Poghosyan state in parliament in the first reading, presenting a bill on amendments to the Tax Code of the Republic of Armenia.
Thus, deputy Alkhas Ghazaryan asked the representative of the Ministry of Finance whether the initiator of the changes was concerned that by tightening the conditions for small and medium-sized businesses, large players would have more opportunities to push them out of the market.
"This proposal is based on a fairly solid and expanded analytical base," the Deputy Minister of Finance assured in response. "Simply this will be a step to reduce the large gap in the tax burden. This will also provide an opportunity to discuss the complete abolition of the sales tax system in the foreseeable future," he added.
In particular, early research by the Ministry of Finance indicated that two businesses engaged in the same activity find themselves in an unequal position - small and medium-sized businesses pay turnover tax, large businesses pay income tax and VAT. As a result, the effective tax paid by SMEs is 3-4%, and large businesses pay 2-2.5 times more - 10%. Thus, the total tax burden for VAT and income tax in the manufacturing industry exceeds the burden for turnover tax by 2 times, in construction - by 2.6 times, in the field of trade - by 2.6 times, in the field of accommodation and public catering - 3 times, in the real estate sector - 2.1 times, in the field of professional, scientific and technical activities - 2.8 times. As a result, taxpayers try to be and remain in this system at any cost, including hiding real sales volumes, or artificially splitting up the business, so as not to cross the threshold not subject to value added tax and not move into the general taxation system.
The government of Armenia plans to review the turnover tax system from October 2024, and from 2025 to narrow the scope of beneficiaries of the micro-enterprise system. Currently, turnover tax (replaces VAT and income tax) is paid by business entities whose annual turnover does not exceed 115 million drams (from January 1, 2020, Armenia returned to non-taxable annual turnover up to 115 million drams). This group includes SMEs, individual entrepreneurs and notaries. We are talking, in particular, about payments of 5% from the turnover of commercial activities and 3.5% from industrial activities.
Now the Ministry of Finance proposes to double the turnover tax rates established for main types of activities, providing the opportunity to reduce the tax payable through documented expenses. According to the Ministry of Finance, this will stimulate the transition to a common taxation system.
The authorities also plan to expand the range of activities prohibited from taxation under the microenterprise tax and turnover tax systems. In particular, from 2025 it is recommended to limit; the opportunity to engage in notary, lawyering and organizing lotteries in the value added tax system; in the micro-enterprise taxation system, the activities of taxpayers engaged in the purchase and sale and/or rental of real estate in the regions, hairdressing services, body care, car maintenance services, intermediary services, software development and construction work, assessment and measurement of real estate , activities related to the organization of baths and saunas.
The adoption of the project promises the state treasury an annual increase in turnover tax revenue of approximately 17.8 billion drams.
Earlier, representatives of SMEs told ArmInfo that the share of small and medium-sized businesses in Armenia's GDP, according to the latest data, is about 25%. Meanwhile, the figure in developed countries is usually in the range of 50-60%. And instead of developing additional tools to support SMEs, the RA authorities are tightening conditions in the form of a double increase in the turnover tax rate with a further abandonment of the system as a whole. As pointed out by the President of the SME Cooperation Association Hakob Avagyan, the bill was adopted by the Cabinet of Ministers without taking into account the risks and assessing its impact, which will lead to higher prices for services, an increase in the "shadow" and the closure of a number of business entities.
The day before, the legal community announced that, as a sign of protest against the "unreasonable" bill, which limits the ability of citizens to receive legal assistance, since it will lead to an increase in the price of services by at least a third, it refuses to participate in any trials, as well as in any proceedings with government agencies.
