Justice or sixfold increase of burden: tax changes discussed in the National Assembly of Armenia
YEREVAN, 20 November. /ARKA/. The Armenian Parliament on Thursday discussed amendments to the Tax Code proposed by the government, which envisage changing the preferential tax regime enjoyed by many small and medium-sized enterprises (SMEs).
According to Deputy Finance Minister Arman Poghosyan, these enterprises have long been exempt from value added tax (VAT) and profit tax, set at 20 and 18 per cent respectively, and pay instead a ‘simplified tax’ of 5 per cent of their annual turnover. He said the proposed changes were prompted by the need to create a level playing field for all types of businesses.
'A teacher or a doctor pays 20 per cent income tax, while individual entrepreneurs or micro-enterprises either do not pay this type of tax at all or pay 5 per cent tax on their turnover,’ he argued.
The government bill suggests excluding advocacy, accounting, consulting, advertising, construction, architectural design and real estate trade from the types of economic activities covered by this tax break. In its opinion, companies and individual entrepreneurs engaged in these sectors have an unfair advantage over other types of business, he said.
According to the deputy minister, the total tax burden on VAT and income tax in the manufacturing industry exceeds the turnover tax burden 2 times, in the construction sector - 2.4 times, in trade - 2.6 times, in accommodation and catering - 3 times, in real estate - 2.1 times, in professional, scientific and technical activities - 2.8 times, in the provision of legal and accounting services - 3.2 times.
The deputy minister noted that if the enterprises document all the expenses, they will be able to significantly reduce the tax burden by writing off the expenses from their income. It is expected that as a result of the changes about 13 billion drams will be additionally collected in the budget.
Representatives of small and medium-sized enterprises, which will be affected by the reform, took part in the discussions. In particular, the lawyers argued that the changes actually deprive citizens of the opportunity to access free legal aid, as in this case the lawyer will have to cover the tax payments at his own expense.
They also accused the authorities of manipulating facts, referring to teachers and doctors. Thus, they wondered why workers in the IT sector, whose income is much higher than the national average, should have tax exemptions while teachers and doctors should pay 20 per cent. The same question was also asked about owners of expensive houses who earn a lot of income from renting out and yet pay only 10 per cent tax.
They also argued that the tax burden would eventually increase further and could reach 33 per cent instead of the current 5 per cent. This was indirectly confirmed by the deputy minister, who said that in the worst case scenario, if certain conditions are not met, SMEs will indeed have to pay 33 per cent tax.
Representatives of the expert community and business came to a clear conclusion: these changes will only lead to an increase in the cost of services up to 40 per cent, and this burden will fall directly on the shoulders of citizens. -0-
