Effective combat against shadow economy requires separating political powers from businesses, former CB head says

YEREVAN, October 6. / ARKA /. To effectively combat the shadow economy Armenia’s top authorities must first of all separate political powers from businesses, which require a system approach, a former head of the Central Bank, Bagrat Asatryan, said to a news conference today, arguing that this problem can not be solved at the expense of small and medium-sized businesses only. 

He meant a revised law on sale taxes effective from October 1, which introduced a single turnover tax for small firms and individual entrepreneurs with annual revenues not exceeding 58 million drams ($140,000) cutting it from 3.5 percent to 1 percent. The law also obligates these businesses to provide tax authorities with documentary evidence of all of their transactions with suppliers. The failure to do so entails large fines. 

The government says the law is designed to combat tax evasion by importers of goods, but representatives of SME say complying with law is actually impossible because wholesale traders refuse to issue receipts to them.

"The problems faced now by SMEs reflect the overall economic situation of the country. The authorities are naive thinking that by lowering tax rate for SMEs they can solve the tax evasion problem by large businessmen,” Asatryan said.

According to him, the law in question will not work in Armenia because of ‘specific relationships’ established long ago between large and small businesses.

"If the government truly wishes to support the SMEs, it could have reduced the sales tax rate unconditionally – without demanding that businesses provide tax authorities with documentary evidence of all of their transactions with suppliers. The authorities in the first place must separate politician power from businesses," said Asatryan. 

According to the latest report by Armenia’s Human Rights Defender, about 40 percent of the economy is in shadow. -0-