RUEA warns of threats to Armenia`s economy in wake of State Revenue  Committee`s initiative 

ArmInfo. The Republican Union of Employers of Armenia (RUEA) believes that if the State Revenue  Committee (SRC) is truly concerned about the problem of tax collection and increasing tax discipline, it should simply abandon the initiative to abolish incentive norms and establish stricter criminal liability for tax violations, since its adoption, in addition to other destructive consequences for the country's economy, will directly aggravate the problem of tax evasion.

Earlier, ArmInfo reported that the State Revenue Committee decided to  abandon incentive norms, stating that they contribute to the  commission of tax crimes, and the legal grounds for recognizing  exemption from criminal liability by compensating for property damage  caused by a crime hinder and do not provide an opportunity to prevent  the commission of new tax crimes. The initiator proposed to establish  punishment for tax offenses in the form of imprisonment for a term of  3 years or more, in the event of violations in the amount of 10  million drams or more. The bill was met with extreme negative  reactions by the business community and expert circles. But the head  of the State Revenue Committee Rustam Badasyan retorted, stating that  due to the presence of this article (Part 5 of Article 290 of the  Criminal Code of the Republic of Armenia - ed.), the competitive  environment in the republic has been undermined.

"The Republican Union of Employers of Armenia (RUEA) fully supports  legislative initiatives aimed at increasing tax discipline and  preventing tax crimes (which the SRC is trying to the need  to adopt the presented project with), but is deeply convinced that  the adoption of this project will not only fail to contribute to the  implementation of the goal set by the SRC, but will simply have a  destructive impact on both ensuring the continuity of ongoing  economic activity and on decision-making on the implementation of new  business initiatives in the Republic of Armenia>, - the statement  said. In particular, as the members of the Union believe, the  introduction of such a legislative initiative gives serious grounds  to believe that the ultimate goal of the SRC is to bring people to  criminal liability, and not to ensure the payment of taxes.   in the form of imprisonment for the  offense committed for some reason," they noted.

At the same time, if a person is brought to criminal liability, the  State Revenue Committee will have to apply additional administrative  efforts and spend resources to ensure the fulfillment of unpaid tax  obligations, since, as already mentioned, no person will voluntarily  pay tax amounts if he or she is also subject to criminal liability.  Meanwhile, it is high time for the State Revenue Committee to realize  that not causing harm to business in tax administration should be  considered a priority, and in the case of tax offenses, punitive  instruments should be used only when all possibilities for ensuring  the fulfillment of tax obligations by administrative and legal  methods have been exhausted. At the same time, the Union recalled  that tax discipline largely depends on the level of tax literacy of  both specialized specialists of business entities (accountants, tax  officers, etc.) and tax employees. In this context, it is necessary  to take into account the complexity of tax legislation, the frequency  of its changes, professional nuances of the application of  legislative norms, the peculiarities of the application of  international tax legal norms, which does not guarantee error-free  work even for the vast majority of specialists.

In addition, in many cases, the that serve  as the basis for initiating criminal cases are often far from  reflecting the real situation. It is also not uncommon for tax  officials to not dare to significantly deviate from the provided by the auditor during tax audits appointed by  the auditor on the basis of . , - ask the members of the Union.

The RUEA also warns of threats to the investment attractiveness of  the Republic of Armenia as a whole.  Moreover, there will be an  outflow of capital from the Republic of Armenia. , the experts noted. In addition, as they believe, there is  no doubt about the presence of serious corruption risks when adopting  the project. In particular, in order not to exceed the threshold of  criminal liability (10 or 20 million drams) or to avoid criminal  liability altogether, a taxpayer who has committed a tax offense  under any circumstances will try to negotiate with the tax authority.  The latter, threatening criminal liability, will simply dictate their  terms when reaching an agreement with the taxpayer.

The RUEA is perplexed; in recent years, the State Revenue Committee  has repeatedly reported on increasing the level of tax discipline.  So, what is the real goal of the initiative in this specific period  of time?, they ask. Unlike previous years, during 2024, the State  Revenue Committee does not report exceeding the approved tax revenue  targets. At the same time, according to official information, tax  revenues for the first half of 2024 were collected less than planned  by approximately 117 billion drams. If these trends continue, the  annual shortfall may reach about 230 billion drams, which is almost  10% of the annual tax revenues approved by the budget. Of course, it  is important for the state that the government has sufficient  financial resources to fulfill budget expenditures. But this does not  mean at all that the issue of bringing businessmen to full criminal  liability should be considered as a way to correct the current  situation; the reasons for this should be sought elsewhere,  especially since such a solution to the issue will have the opposite  effect: tax arrears will increase," the experts noted.

A study of international experience also documents that the  overwhelming majority of countries prefer to use incentive standards,  the Russian Union of Taxpayers (RUTA) stated. In particular, similar  incentive standards are also used in the EAEU member states,  neighboring Georgia.

, they noted.

Thus, having studied the experience of 47 member countries of the  Organization for Economic Cooperation and Development (OECD), the  Union states that yes, all OECD member countries apply criminal  prosecution for tax offenses. However, even in these countries,  which, compared with non-OECD countries, support the use of more  stringent criminal instruments for tax offences, a number of rules  based on the priority of tax payment are applied.

In this vein, the Union is convinced that before introducing such a  legislative initiative, the State Revenue Committee should have  analyzed the realities that have developed over the past few years in  order to find out whether tax officials are acting within the legal  framework when implementing their control functions.  , - they  noted.

The experts are also concerned about the part of the initiative that  concerns the criminalization of smuggling. The initiator proposes to  establish punishment for this criminal act in the form of  imprisonment for a term of 3 to 6 years.

Based on the above, the RSRA once again calls on the State Revenue  Committee to refrain from the presented project.

It should be noted that the corresponding legislative initiative was  posted on the single portal of legal acts on August 8 and by the end  of August 23 (during this period it was possible to vote and make  proposals) 100% of respondents spoke out against the project.