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TAX REFORMS IN ARMENIA ARE AIMED AT DEVELOPING SME SECTOR
Noyan Tapan
http://www.nt.am/news.php?shownews=117709
Se p 25, 2008
YEREVAN, SEPTEMBER 25, NOYAN TAPAN. The Armenian government has
launched tax reforms "on a wide front", while their assessments are
contradictory. Gagik Poghossian, the Deputy Chairman of the Board of
the Association for Foreign Investment and Cooperation (AFIC) NGO,
expressed his opinion about these reforms in an interview with NT
correspondent. The NGO has participated in the preparatory work and
discussions of the tax reforms.
NT: Mr. Poghossian, what was the participation of your association
in the reforms being implemented in Armenia's tax sector now?
G.P: We published our recommendations on tax reforms last year
when in 2006-2007 we implemented a project on these problems with
the assistance of the Center for International Private Enterprise
(CIPE), affiliate of the US Chamber of Commerce. I should note with
satisfaction that several of our recommendations were reflected in
the RA government's program approved in July 2007 (NT: the current
president Serzh Sargsyan was the prime minister at that time), as well
as were included in the package of tax legislation reforms which was
adopted recently.
After the formation of the present government, special importance
was attached to the implementation of second-generation economic
reforms, during the preparation for which a number of meetings and
discussions with representatives of the structures representing
the business community were held. AFIC also took an active part
in these discussions. In May, a timetable of actions for tax sector
reforms was approved by Prime Minister Tigran Sargsyan. In particular,
great attention was paid to the problems whose solution would create
favorable conditions for operation of small and medium enterprises. As
a result, a package of legislative amendments (18 bills) developed
by the government was submitted to the National Assembly.
The package was passed at a special session of the National Assembly
in August. The majority of the amendments will take effect on January
1, 2009.
The most important amendment is that instead of the previously used
simplified tax, an improved form of taxation will be introduced for
small business entities which will ensure favorable conditions for
them. Hereby, the minimum level of annual turnover for being considered
as a small entity has been changed: from January 1, 2009, it will
make 58 million drams or over 190 thousand dollars. Enterprises with
lower turnover will not pay value added tax which will considerably
simplify the red tape and tax statements of SMEs.
NT: When the results of the new changes can be expected?
GP: I think that some progress has been made in tax reforms. Of
course, their result and impact on small entrepreneurship can be
assessed only at the end of the coming year of the new legislation's
application, but the general picture will be clear within the first
few months. AFIC plans a monitoring activity with the aim of assessing
the indicated impact.
In any case, I hope that this impact will be a positive one as in
fact, the Law on Simplified Tax often provided big businesses with
an opportunity to abuse: an opportunity to pay simplified tax by
splitting up their businesses. Whereas these tax reforms aim to promote
the growth and development of small enterprises - such enterprises
that have no opportunity to have an accounting unit and deal with
the red tape related to complicated tax statements. The abuses of
the Law on Simplified Tax were the reason that the number of those
liable to this tax was strictly limited last year which, naturally,
caused discontent of small and medium entrepreneurs.
Naturally, the tax legislation package contains some provisions which
aim to restrict the entry of big enterprises into the field of SME
taxation. It is also natural that there are problems with ensuring
budgetary revenues that should be taken into account as well.
In any case, quite an interesting atmosphere of cooperation of business
associations and business support organizations with state government
bodies has already formed, and I hope that this cooperation will
be lasting. The information gained by the business NGOs and their
ability to conduct monitoring represent quite a serious resource of
efficient work of state bodies. For example, we actively work with
the RA Ministry of Economy and the government-adjunct State Revenue
Committee and participate in all discussions organized by these
departments. We envisage joining our efforts with several other NGOs
to create a Business Advocacy Network for economic reforms.
By the way, our association together with several partner structures
took quite an active part in the discussion of the draft concept and
action plan "Armenia as a Center of Excellence" in accordance with
"Doing Business" indicators initiated by the Ministry of Economy. The
approval and implementation of the concept will be a step forward
in the development of entrepreneurship, particularly SME sector,
in our country. After publication of the final version of the draft
concept, we envisage organizing work on the draft's amendment within
the framework of the Business Advocacy Network.
In this respect AFIC closely cooperates with the Chamber of
Commerce and Industry of Yerevan, the Foundation for Small and
Medium Businesses, "Armenian Entrepreneurship" SME Union, the Small
and Medium Entrepreneurship Development National Center (SME DNC)
of Armenia and other structures.
NT: Are there any by-laws necessary for the use of the new tax
legislation?
GP: It happened that in late August, on the day when the National
Assembly passed the above mentioned legislative package, Armenian
President signed a decree on uniting the RA government-adjunct
State Tax Service and State Customs Committee into a State Revenue
Committee. Personnel and structural changes are currently underway
at this structure. I think that after these changes are over and
everything settles down, the mechanisms for using the new legislative
package will be worked out.
NT: The correct application of the Law on Simplified Tax was impeded by
the fact that it was impossible to use records of commodity purchases
and sales for the calculation of real turnover of an enterprise
because considerable part of its turnover was done at fairs, without
cash registers. By the new amendments, the use of cash registers
at fairs is mandatory. What impact will it have on regulating the
documentation in the chain "import - production - sale - export"?
GP: The solution to this problem is given in the tax legislative
package passed by the National Assembly in August.
The inhibition of undocumented turnover is a serious problem. For
example, we explained during our meetings with SME representatives that
to keep documents while operating is to their advantage. Under the
new law, SMEs are already profit tax payers. I would like to remind
you that simplified tax substituted for VAT and profit tax. Starting
from January 1, 2009, all enterprises are liable to profit tax: each
month they shall make a prepayment in the amount of 1% of turnover
of the previous month, and a final calculation shall be made by the
results at the end of the given year.
This will put an end to the arbitrary practice of tax prepayment
collection.
The availability of documents confirming the amounts of sold and
purchased values is very important from the viewpoint of reducing
the profit tax to be paid.
However, many are used to working in the "shadow" sector, although they
can reduce the profit tax to be paid by substantiating their expenses
based on documents. Many of the small and medium entrepreneurs say
that they are ready to pay taxes if the tax rates are affordable,
and the order and mechanisms of tax payment are simple. That is,
because of the current conditions, they have to evade taxes.
We want to do so that entrepreneur - tax body relations will not be
tax evader - punishing body relations but so that when providing
a service, the tax body will control and help an entrepreneur pay
his/her taxes in time and properly.
During one of our latest discussions, it was confirmed once again that
both phenomena are realities which is the consequence of entrepreneurs'
fear to fix their activities in some way. Perhaps it bears evidence
of the low level of their business education.
We will continue explaining to such entrepreneurs that the more
transparent their work, the fewer reasons to fear tax bodies they
will have. I assure you that now the state does everything so that
tax payers will not make mistakes. In particular, the ministry of
economy jointly with the Association of Accountants and Auditors is
implementing a program, under which accounting courses are organized
free or at low prices for SMEs.
NT: How do you assess the Armenian government's step aimed at
connecting the cash registers of all sales subjects to a united system,
as well as the opinions of those who oppose this step?
GP: As regards cash registers, an idea has been adopted, that is,
the business conditions should be equal and fair for everybody,
irrespective of their workplace, and if a cash register is used in
a small shop, it must be used at a fair. The answer to the question
about why many entities operating at fairs are reluctant to introduce
cash registers is simple: because they operate in the shadow sector.
The requirement on mandatory use of cash registers at trade
facilities pursued the goal of rectifying this situation. Indeed,
no developed state would allow its economic entities to work in the
shadow economy. The issue of tax rates' being high or low is another
matter. The program of tax sector reforms already envisages their
reduction. Why not, if the number of tax payers increases?
I should mention that the legislative package adopted in August
also aims to reduce corruption risks. For instance, an entrepreneur
working in the shadow sector is a corruption risk by himself as
the tax inspector knows very well that he operates in the shadow
sector. But if an entrepreneur works transparently, what danger may
the tax inspector pose to him?
The creation of the opportunity to submit electronic tax statements
in Armenia (this method was introduced in the civilized world long
ago) was great progress in terms of reducing corruption risks in
our country.
As for the introduction of a united network of cash registers, the
problem here lies in finding technical solutions. It is early to
speak about how much time it will take to form such a network. The
major goal here is to reduce the shadow turnover to a minimum. If
the cash register of an economic entity is connected to the network,
its turnover will be recorded every day, and it will become impossible
to submit a tax statement with data not corresponding to the reality.
To sum up what was said above, I note once again that purpose of
the tax reforms being implemented in Armenia now is to improve and
simplify the mechanisms of taxation, document circulation and statement
presentation of SMEs.
From: Emil Lazarian | Ararat NewsPress
Noyan Tapan
http://www.nt.am/news.php?shownews=117709
Se p 25, 2008
YEREVAN, SEPTEMBER 25, NOYAN TAPAN. The Armenian government has
launched tax reforms "on a wide front", while their assessments are
contradictory. Gagik Poghossian, the Deputy Chairman of the Board of
the Association for Foreign Investment and Cooperation (AFIC) NGO,
expressed his opinion about these reforms in an interview with NT
correspondent. The NGO has participated in the preparatory work and
discussions of the tax reforms.
NT: Mr. Poghossian, what was the participation of your association
in the reforms being implemented in Armenia's tax sector now?
G.P: We published our recommendations on tax reforms last year
when in 2006-2007 we implemented a project on these problems with
the assistance of the Center for International Private Enterprise
(CIPE), affiliate of the US Chamber of Commerce. I should note with
satisfaction that several of our recommendations were reflected in
the RA government's program approved in July 2007 (NT: the current
president Serzh Sargsyan was the prime minister at that time), as well
as were included in the package of tax legislation reforms which was
adopted recently.
After the formation of the present government, special importance
was attached to the implementation of second-generation economic
reforms, during the preparation for which a number of meetings and
discussions with representatives of the structures representing
the business community were held. AFIC also took an active part
in these discussions. In May, a timetable of actions for tax sector
reforms was approved by Prime Minister Tigran Sargsyan. In particular,
great attention was paid to the problems whose solution would create
favorable conditions for operation of small and medium enterprises. As
a result, a package of legislative amendments (18 bills) developed
by the government was submitted to the National Assembly.
The package was passed at a special session of the National Assembly
in August. The majority of the amendments will take effect on January
1, 2009.
The most important amendment is that instead of the previously used
simplified tax, an improved form of taxation will be introduced for
small business entities which will ensure favorable conditions for
them. Hereby, the minimum level of annual turnover for being considered
as a small entity has been changed: from January 1, 2009, it will
make 58 million drams or over 190 thousand dollars. Enterprises with
lower turnover will not pay value added tax which will considerably
simplify the red tape and tax statements of SMEs.
NT: When the results of the new changes can be expected?
GP: I think that some progress has been made in tax reforms. Of
course, their result and impact on small entrepreneurship can be
assessed only at the end of the coming year of the new legislation's
application, but the general picture will be clear within the first
few months. AFIC plans a monitoring activity with the aim of assessing
the indicated impact.
In any case, I hope that this impact will be a positive one as in
fact, the Law on Simplified Tax often provided big businesses with
an opportunity to abuse: an opportunity to pay simplified tax by
splitting up their businesses. Whereas these tax reforms aim to promote
the growth and development of small enterprises - such enterprises
that have no opportunity to have an accounting unit and deal with
the red tape related to complicated tax statements. The abuses of
the Law on Simplified Tax were the reason that the number of those
liable to this tax was strictly limited last year which, naturally,
caused discontent of small and medium entrepreneurs.
Naturally, the tax legislation package contains some provisions which
aim to restrict the entry of big enterprises into the field of SME
taxation. It is also natural that there are problems with ensuring
budgetary revenues that should be taken into account as well.
In any case, quite an interesting atmosphere of cooperation of business
associations and business support organizations with state government
bodies has already formed, and I hope that this cooperation will
be lasting. The information gained by the business NGOs and their
ability to conduct monitoring represent quite a serious resource of
efficient work of state bodies. For example, we actively work with
the RA Ministry of Economy and the government-adjunct State Revenue
Committee and participate in all discussions organized by these
departments. We envisage joining our efforts with several other NGOs
to create a Business Advocacy Network for economic reforms.
By the way, our association together with several partner structures
took quite an active part in the discussion of the draft concept and
action plan "Armenia as a Center of Excellence" in accordance with
"Doing Business" indicators initiated by the Ministry of Economy. The
approval and implementation of the concept will be a step forward
in the development of entrepreneurship, particularly SME sector,
in our country. After publication of the final version of the draft
concept, we envisage organizing work on the draft's amendment within
the framework of the Business Advocacy Network.
In this respect AFIC closely cooperates with the Chamber of
Commerce and Industry of Yerevan, the Foundation for Small and
Medium Businesses, "Armenian Entrepreneurship" SME Union, the Small
and Medium Entrepreneurship Development National Center (SME DNC)
of Armenia and other structures.
NT: Are there any by-laws necessary for the use of the new tax
legislation?
GP: It happened that in late August, on the day when the National
Assembly passed the above mentioned legislative package, Armenian
President signed a decree on uniting the RA government-adjunct
State Tax Service and State Customs Committee into a State Revenue
Committee. Personnel and structural changes are currently underway
at this structure. I think that after these changes are over and
everything settles down, the mechanisms for using the new legislative
package will be worked out.
NT: The correct application of the Law on Simplified Tax was impeded by
the fact that it was impossible to use records of commodity purchases
and sales for the calculation of real turnover of an enterprise
because considerable part of its turnover was done at fairs, without
cash registers. By the new amendments, the use of cash registers
at fairs is mandatory. What impact will it have on regulating the
documentation in the chain "import - production - sale - export"?
GP: The solution to this problem is given in the tax legislative
package passed by the National Assembly in August.
The inhibition of undocumented turnover is a serious problem. For
example, we explained during our meetings with SME representatives that
to keep documents while operating is to their advantage. Under the
new law, SMEs are already profit tax payers. I would like to remind
you that simplified tax substituted for VAT and profit tax. Starting
from January 1, 2009, all enterprises are liable to profit tax: each
month they shall make a prepayment in the amount of 1% of turnover
of the previous month, and a final calculation shall be made by the
results at the end of the given year.
This will put an end to the arbitrary practice of tax prepayment
collection.
The availability of documents confirming the amounts of sold and
purchased values is very important from the viewpoint of reducing
the profit tax to be paid.
However, many are used to working in the "shadow" sector, although they
can reduce the profit tax to be paid by substantiating their expenses
based on documents. Many of the small and medium entrepreneurs say
that they are ready to pay taxes if the tax rates are affordable,
and the order and mechanisms of tax payment are simple. That is,
because of the current conditions, they have to evade taxes.
We want to do so that entrepreneur - tax body relations will not be
tax evader - punishing body relations but so that when providing
a service, the tax body will control and help an entrepreneur pay
his/her taxes in time and properly.
During one of our latest discussions, it was confirmed once again that
both phenomena are realities which is the consequence of entrepreneurs'
fear to fix their activities in some way. Perhaps it bears evidence
of the low level of their business education.
We will continue explaining to such entrepreneurs that the more
transparent their work, the fewer reasons to fear tax bodies they
will have. I assure you that now the state does everything so that
tax payers will not make mistakes. In particular, the ministry of
economy jointly with the Association of Accountants and Auditors is
implementing a program, under which accounting courses are organized
free or at low prices for SMEs.
NT: How do you assess the Armenian government's step aimed at
connecting the cash registers of all sales subjects to a united system,
as well as the opinions of those who oppose this step?
GP: As regards cash registers, an idea has been adopted, that is,
the business conditions should be equal and fair for everybody,
irrespective of their workplace, and if a cash register is used in
a small shop, it must be used at a fair. The answer to the question
about why many entities operating at fairs are reluctant to introduce
cash registers is simple: because they operate in the shadow sector.
The requirement on mandatory use of cash registers at trade
facilities pursued the goal of rectifying this situation. Indeed,
no developed state would allow its economic entities to work in the
shadow economy. The issue of tax rates' being high or low is another
matter. The program of tax sector reforms already envisages their
reduction. Why not, if the number of tax payers increases?
I should mention that the legislative package adopted in August
also aims to reduce corruption risks. For instance, an entrepreneur
working in the shadow sector is a corruption risk by himself as
the tax inspector knows very well that he operates in the shadow
sector. But if an entrepreneur works transparently, what danger may
the tax inspector pose to him?
The creation of the opportunity to submit electronic tax statements
in Armenia (this method was introduced in the civilized world long
ago) was great progress in terms of reducing corruption risks in
our country.
As for the introduction of a united network of cash registers, the
problem here lies in finding technical solutions. It is early to
speak about how much time it will take to form such a network. The
major goal here is to reduce the shadow turnover to a minimum. If
the cash register of an economic entity is connected to the network,
its turnover will be recorded every day, and it will become impossible
to submit a tax statement with data not corresponding to the reality.
To sum up what was said above, I note once again that purpose of
the tax reforms being implemented in Armenia now is to improve and
simplify the mechanisms of taxation, document circulation and statement
presentation of SMEs.
From: Emil Lazarian | Ararat NewsPress