Government promises to crack down on tax evasion

Apparently the Armenian government is approving a measure to actually start collecting taxes that authorities have previously “overlooked.” Wealthy big businessmen have traditionally received tax breaks, both legitimized and conspicuous, and on the whole people that own properties, material goods, or firms have been able to successfully get away with tax evasion. As a result social service programs are under funded and pensioners make between $12 and $20 a month.

In 2006, tax revenues only comprised 14.6 percent of the total Gross Domestic Product (official exchange rate of $6.6 billion according to the CIA World Factbook), whereas by comparison in the US total collected taxes for 2006 amounted to $706,334,858 with a GDP of $13.22 trillion. So something seems to be dreadfully wrong in Armenia’s case. Tax revenue is expected to increase to 15.7 percent this year, yet consider that the 2007 state budget for Armenia is $1.48 billion.

According to the State Tax Service (STS), if the program is implemented (i.e., if businessmen start paying taxes and tax collection officials stop taking bribes), the amount of revenue generated from collected taxes will rise to 20 percent in 2010. I don’t know if that number takes into consideration the rise in the state budget, nevertheless the number is still way too low. I do not understand how the spending budget is determined in this country when tax collection is relatively weak. The Armenian method of economics still remains a disturbing mystery.

Many companies basically avoid paying taxes by playing with the accounting figures and posting losses. As an example, despite the construction spree in Yerevan Gagik Tsarukian’s MultiGroup cement factory (assuming that’s what it’s called since many of his businesses have “Multi” in the name) in the town of Ararat has been claiming that it has been in the red for years. Looks like the boys at the STS have been doing very well to shut up about it. Yet supposedly that’s all about to change according to this measure. Somehow I doubt it, but then again, you never know. So far this year both the STS and customs have supposedly collected approximately $254 million in revenue.