Most Armenian farmers will be exempt from a 20 percent sales tax for agricultural products to be introduced in 2009 in line with Armenia’s commitments to the World Trade Organization, President Robert Kocharian said on Tuesday.
The value-added tax (VAT), levied from sales of all non-agricultural goods, has long been the Armenian government's’ single largest source of revenues. Yerevan pledged to extend it to the agricultural sector when it was admitted to the WTO in February 2003 after a decade of membership talks with its more than 140 member states.
With agricultural production making up approximately one fifth of Armenia’s Gross Domestic Product, a broader enforcement of VAT would give a sizable boost to the government’s tax revenues. However, most Armenians living in rural areas are subsistence farmers that already struggle to eke out a modest living and pay a separate tax on their land. Very few of them receive can count on government compensation for hail, droughts and other adverse weather conditions that regularly wreak havoc on Armenian agriculture.
Kocharian was quoted by his office as telling Agriculture Minister David Lokian to ensure that farmers whose annual turnover does not exceed 8 million drams ($20,000) do not have to pay VAT when it comes into force in January 2009. The vast majority of villagers will almost certainly not pass this income threshold.
A statement by the presidential press service also said VAT will be set at an average of 10 percent for less vulnerable rural households with a turnover of between 8 million and 12 million drams. Other, wealthier farmers will have to pay the tax in full.
The tax breaks will presumably require corresponding changes to Armenian tax legislation. It is not clear if they might put Armenia at loggerheads with longtime WTO members like Australia and Canada that set specific conditions for its entry into the organization setting rules on international trade. The Armenian government agreed in particular to scrap a 10 percent duty on some imported foodstuffs and limit its agricultural subsidies to just $40 million a year.
Some local manufacturers feared that WTO membership and the resulting further liberalization of Armenia’s trade regime could reflect negatively on their businesses. But those fears seem to have been misplaced so far, with Armenian exports growing more rapidly than imports between 2003 and 2005.