ArmInfo. In Armenia, a business with a high level of documented expenses may even end up in the black as a result of the proposed tax amendments. This assurance was made by Deputy Finance Minister Arman Poghosyan on November 19 at parliamentary hearings on the package of bills on amendments and additions to the RA Tax Code, concerning the transfer of certain areas of professional activity to the value-added tax system.
The Deputy Minister recalled that the policy of the RA government is aimed at narrowing the circle of beneficiaries of special tax regimes - the microentrepreneurship system and the turnover tax. The goal of this policy is to establish and strengthen the principle of tax justice.
Thus, the Deputy Minister noted, the country's financial authorities are trying to solve two main - diagnosed problems. The first concerns the fact that currently a teacher or doctor engaged in 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 Deputy Minister recalled that as a result of the June amendments to the Tax Code, from January 2025 the turnover tax rates established for the main types of activities will be increased (by two times - ed.) with the possibility of reducing the tax payable due to documented expenses. In particular, today a 5% turnover tax rate has been established for entrepreneurs in the field of trade activities, with the possibility of deducting 4% of documented expenses from liabilities, but not less than 1.5% of turnover.
As part of the initiative, it is proposed to set a rate of 10% of income with the possibility of deducting 9.5% of expenses, but not less than 1.0% of turnover. Then the effective tax will increase from 2.3% to 4.1%, providing the state treasury with additional taxes in the amount of 4.9 billion drams. Catering companies currently work with a 6% turnover tax with the possibility of a tax deduction of 3% of documented expenses, but not less than 4% of turnover.
Currently, Armenian restaurateurs pay an average of 4.3% of sales turnover, which they assess as a low tax burden. In this regard, it is proposed to establish a 12% turnover tax with the possibility of a tax deduction of 9% of documented expenses, but not less than 3.5% of turnover. In this case, the effective tax will increase from 4.3% to 6.6%, providing the state treasury with additional taxes in the amount of 4.9 billion drams.
Changes are also planned for representatives of production activities. Currently, the turnover tax rate is 3.5%. It is proposed to set the rate at 7% of income with the possibility of deducting 5% of expenses, but not less than 3.5% of turnover. In this case, the effective tax will increase from 3.0% to 5.3%, providing the state treasury with additional taxes in the amount of 0.6 billion drams.
, Poghosyan explained. In particular, the Finance Ministry representative emphasized that for other types of activities, the current 5% turnover tax rate will increase to 10% from 2025 with the possibility of deducting 6% of documented expenses from liabilities, but not less than 4.5% of turnover. In this case, the effective tax will increase from 5% to 8.5% (providing the state treasury with additional taxes in the amount of 8.7 billion drams - ed.).
According to Poghosyan, as a result, it is expected that the difference between the tax burden of the turnover tax system and the general taxation system will be reduced. Thus, when comparing the tax burden of the general taxation system (VAT and profit tax) and the turnover tax system in certain areas of economic activity, it turned out that in almost all industries (except for 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. In particular, the total tax burden of VAT and profit tax in the manufacturing industry exceeds the turnover tax burden by 2 times, in construction - by 2.4 times, in the trade sector - by 2.6 times, in the accommodation and catering sector - by 3 times, in the real estate sector - by 2.1 times, in the professional, scientific and technical activities - by 2.8 times, in the provision of legal and accounting services - by 3.2 times.
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. In this regard, from 2025, the range of activities prohibited from taxation in the micro-enterprise tax and turnover tax systems will be expanded.
In particular, from 2025 it is recommended to limit the possibility of engaging in notarial, legal activities and organizing lotteries in the turnover tax system, in the micro-enterprise taxation system the activities of taxpayers engaged in the purchase and sale and/or lease of real estate, hairdressing services, body care, car maintenance services, software development and construction work, assessment and measurement of real estate, activities for organizing baths and saunas. They will have to work either in the turnover tax system or under VAT.
As the Deputy Minister of Finance pointed out, if the new initiative is approved, from July 2025, those taxpayers who carry out the following types of 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; healthcare.
During discussions with stakeholders, 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 microenterprise 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 are included in the composition of expenses, deductible income.
If the new amendments are adopted, the annual increase in state budget revenues from VAT and income tax is estimated at approximately 13 billion drams. The previous draft, adopted in June, as previously stated by the Ministry of Finance, promises the state treasury an annual increase in revenues from turnover tax of approximately 17.8 billion drams.
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 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 commercial turnover and 3.5% of production turnover.
