, Armenia
Oct 2 2010

More VAT, less profit taxes in Armenia

October 02, 2010 | 10:32

By Albert Khachatryan

The Armenian Statistical Service reports that Armenia's net tax
revenues exceeded 378bn AMD this January-August - a 21.4% increase as
compared with the corresponding period last year.

During the review period, tax revenues constituted 75.1% of the total
budget revenues - hardly any change as compared with the corresponding
period last year (75%). However, the tax revenue structure has
undergone changes which indicates certain tendencies in commercial

Specifically, due to higher rates of increase during the period under
review, the share of the value-added tax (VAT) revenues in the total
tax revenues showed a 4.6% increase - 48.2% up to 52.8%. On the other
hand, the VAT revenue share showed a 4.1% decrease - 18.2% down to

These structural changes can be considered negative: consumers
formally pay the VAT, while companies pay profit taxes. That is, it is
ordinary consumers, not businessmen that mainly have to bear the tax

The aggravating factor is that the net profit taxes paid to Armenia's
state budget this January-August have shown an increase of as much as
5.9% as compared with last January-August. This fact can also be
viewed in the following aspect: other things being equal, the cost of
goods and services has considerably increased, which caused a
reduction in profits.

An appreciable increase in foreign trade turnover (25.3%) this
January-August certainly contributed to the changes in the budget tax
revenues - a considerable share of VAT taxes is deliberately withheld
at the customs border. The RA State Revenue Committee reports that the
taxes withheld at the customs constituted 48.3% of all the taxes paid
by the thousand largest Armenian taxpayers in the first half of 2010.

It should be noted that Armenia's imports exceed exports several
times, which suggests that it is mostly importers that pay the VAT at
the customs border. So they - as well as exporters - lose working
capital necessary for business operations. It is noteworthy that part
of the VAT amount withheld by the customs is reimbursed to companies
after recalculations - and after a time gap.

Guillermo Tolosa, IMF Resident Representative in Armenia, recently
pointed out a disproportionate share of the VAT paid at the customs,
particularly the share forming the government debt to taxpayers.
According to the RA State Revenue Committee, VAT overpayments had
totaled as much as 52.3bn AMD by this July!

From: A. Papazian