Fair taxation results in benefit restrictions 

ArmInfo.The Ministry of Finance of Armenia, in order to establish , proposes  to transfer certain areas of professional activity to the value added tax system from July 2025.

,  - said the Minister of Finance of the Republic of Armenia Vahe  Hovhannisyan on November 7 at a meeting of the Cabinet of Ministers  presenting the relevant amendments to the Tax Code. In particular,  the head of the Ministry of Finance explained, the problem is that a  teacher or doctor carrying out professional activities pays income  tax in the amount of 20% from their salary, while representatives of  other areas of professional activity or the same individual  entrepreneurs either do not pay this type of tax at all, working in  the sphere of micro- entrepreneurship, or pay a 5% turnover tax.

The next problem is that when operating in the micro-entrepreneurship  system, business entities are exempt from business taxes, and the tax  burden in the turnover tax system is significantly lower than the  burden for businesses operating in the general tax field but engaged  in the same type of activity. This leads to aggressive tax planning,  underestimation of the real amount of taxes, believes the chief  financier of Armenia. For this purpose, the financial authorities  propose to remove certain areas of professional activity from the  scope of application of special taxation systems.

The Minister reminded that in this context, amendments to the Tax  Code have already been adopted, which will come into force on January  1, 2025. In particular, the turnover tax rates will be doubled. In  addition, from 2025, representatives of notary, advocacy activities  and the organization of lotteries from the turnover tax system will  be transferred to the general tax field; in the microenterprise  taxation system, the activities of taxpayers engaged in the purchase  and sale and / or lease 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 for the organization of baths  and saunas will be limited (the adoption of the project, as  previously indicated in the Ministry of Finance, promises the state  treasury an annual increase in revenues from the turnover tax of  about 17.8 billion drams - ed.).

If the new initiative is approved, from July 2025, those taxpayers  who carry out the following activities cannot be microentrepreneurs  or payers of turnover tax: legal and accounting activities; head  office activities; management consulting services; building  construction, civil engineering, specialized construction activities;  real estate transactions for a fee or on a contractual basis;  architectural and engineering activities; technical testing and  analysis; advertising activities and market research; scientific  research and technical development, other professional, scientific  and technical activities; activities to provide temporary labor;  health care.

During discussions with stakeholders, according to Hovhannisyan, a  number of areas of activity, such as veterinary activities, social  services to the population with the provision of housing, activities  to provide social services without the provision of housing, were  excluded from the list. An early draft also proposed to limit the  operation of interregional, intraregional transport routes or the  organization of bus (minibus) passenger transportation in the  micro-enterprise system. The entry into force of the amendments was  also postponed - from January to July 2025. The possibilities for  reducing the tax base were expanded, in particular, administrative  costs were included in the composition of expenses, deductible  revenues. If the amendments are adopted, the annual increase in state  budget revenues from VAT and income tax is estimated at approximately  13 billion drams.

Currently the 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 a non-taxable annual  turnover of up to 115 million drams). This group includes SMEs,  individual entrepreneurs and notaries. In particular, we are talking  about payments of 5% of the turnover of commercial activities and  3.5% of the turnover of production. As previously reported by the  Ministry of Finance, studies show that instead of an alternative  general taxation system, the turnover tax system has turned into a  preferential taxation system. In particular, when comparing the tax  burden of the general taxation system (VAT and income tax) and the  turnover tax system in certain areas of economic activity, it turned  out that in almost all industries (with the exception of those  industries in which the main transactions are exempt from VAT), the  tax burden of the general taxation system significantly exceeds the  turnover tax burden. Thus, the total tax burden on VAT and income tax  in the manufacturing industry exceeds the burden on turnover tax by 2  times, in construction - by 2.6 times, in trade - by 2.6 times, in  the sphere of accommodation and public catering - by 3 times, in the  sphere of real estate - by 2.1 times, in the sphere of professional,  scientific and technical activity - by 2.8 times.