The Armenian government’s tax revenues continued to grow strongly in the third quarter of this year on the back of improved customs administration, putting the country on track to post a state budget surplus for the second consecutive year.
According to the Finance Ministry, the government collected 383.5 billion drams ($1.26 billion) in various taxes in the first nine months of 2008, a 33.2 percent increase from the same period last year.
The surge was instrumental in a budget surplus of 14 billion drams registered in January-August 2008. The government had projected a budget deficit of almost 50 billion drams, equivalent to 2.3 percent of Gross Domestic Product (GDP), for this period. Better-than-expected tax collection already enabled Armenia to post a modest budget surplus in 2007.
As was the case in the first half of this year, much of the latest gain reported by the Finance Ministry resulted from increased proceeds from valued-added tax (VAT), which jumped by almost 41 percent and accounted for just over half of the overall tax revenues in January-August 2008. By comparison, corporate profit tax generated less than 16 percent of the revenues.
With nearly two thirds of VAT proceeds coming from imported goods, the Armenian customs appears to have raised most of the extra state revenues in the nine-month period. President Serzh Sarkisian cracked down on rampant corruption within the customs shortly after taking office in April. Local businessmen say the scale of bribery and other corrupt practices there has since decreased considerably.
There have been no signs of similar improvement in the work of tax authorities. Sarkisian launched a blistering attack on the State Tax Service in August shortly after it was merged with the customs service into a new agency, the State Revenue Committee.
The high share of VAT in the tax revenues suggests that tax collection is continuing to improve largely at the expense of ordinary consumers, rather than wealthy citizens, who have been the main beneficiaries of Armenia’s double-digit economic growth. Many Armenian companies, especially those owned by government-connected tycoons, have long reported suspiciously low earnings.
Armenia’s liberal Prime Minister Tigran Sarkisian has declared improved tax administration and a fight against widespread tax evasion a top government priority, saying that is key to reducing government corruption and strengthening the rule of law. His cabinet unveiled in early August a three-year plan of legislative and administrative measures meant to achieve that objective. Sarkisian said the reform will primarily target large companies suspected of tax evasion and will result in an “environment of soft tax administration” for small and medium-sized businesses (SME).
However, SMEs are a major target of a raft of government-drafted amendments to Armenia’s Customs Code and a dozen other tax laws that were passed by the National Assembly later in August. In particular, the legislative package effectively abolished the so-called “simplified tax” that exempted small firms and individual traders from payment of VAT and other duties levied from larger companies.
The government has already ordered thousands of small traders selling prepared foodstuffs, clothing and other consumer goods in retail markets across the country to install cash registers used for calculating VAT contributions.
(Photolur photo: Prime Minister Tigran Sarkisian inspects a customs post on the Armenian-Georgian border.)