Struggle against shadow economy in Armenia

Struggle against shadow economy in Armenia

 

Susanna Petrosyan, exclusively for VK

 

Since early autumn Armenia has been experiencing a devaluation of the national currency and a growth in prices, including that of bread. The Armenian dram, which at one point had started growing again, fell 10% against dollar. In this situation, amendments to the law on minimal wages looked quite peculiar. According to the amendments, from January 1 2013 the minimum wage should rise by 6 dollars. The parliament has already approved this document in the first reading. The ruling coalition members voted for the amendments, while the opposition Armenian National Congress and Heritage voted against it. Deputies from Prosperous Armenia and ARFD abstained from voting.

 

The discussion of the documents provoked a storm of disagreement among opposition politicians. Deputy of the ANC Lyudmila Sargsyan said that the law is insulting to the citizens of Armenia. Her colleague from Prosperous Armenia, Naira Zagrabyan, said that the law is offensive because the outrageous growth in prices does not correspond to the growth in wages, pensions and the minimal consumer basket (which today is about 50,000 drams).

 

The Minister of Finance, Vache Gabrielyan, disagreed with the claims of outrageous price growth and inadequate salaries and pensions, but had to admit that the salaries do not cover even the minimum consumer basket. “We propose to resolve these questions gradually,” the minister promised. Probably by this he meant the collection of taxes and the reduction of the shadow economy.

 

According to the Deputy Minister of Finance, Atoma Dzhandhugazyan, the income of the Armenian state budget in January-September 2012 grew by 7.4%, or 45.8 billion drams, as compared to the same period of 2011. The volume of income from taxes reached 628.1 billion and reached the planned indicator. The opposition is not so optimistic. According to a member of the ARFD, Artsvik Minasyan, the correspondence of taxes and GDP, that is 21-22%, will be far from ideal for many years. An MP from the opposition ANC, former prime-minister Grant Bagratyan, claimed on the basis of Amnesty International's  information that the shadow economy in Armenia reached 44.6%.  If 5 years ago Armenia held 110th place out of 138 according the level of its shadow economy, now it is in 129th place. He confirmed the growth of the shadow economy was due to the decrease in the ratio between state expenditure and GDP from 22.77 to 22.74% in 2011-2012.

 

In one of his recent speeches, President Serzh Sargsyan stressed the problem of tax collection: ”We all have to face the question of the struggle of the State Committee for State Expenditure with the shadow economy. Any interference in the work of the taxation structures will be punished.” In response, the Committee for State Expenditure promised to fight the “shadow economy.” In particular, from next year they will introduce new cashddesk machines,  that will transfer all the information to the server of the Tax Service.

 

The introduction of this new equipment, which is quite expensive by Armenian standards – 180,000 drams, or 450 dollars - is explained by the need to fight the shadow economy. According to the journalist Ayk Gevorkyan from the “Armenian Times”, while the tax institutions focus on the retail, they ignore whatever happens in wholesale. The tax inspectors are never interested in how certain goods, like chicken or sugar, appear in the shops. This is because small shops buy their products at wholesale points backed by the huge monopolists, but the small businessmen often cannot get any documents confirming the purchase.  Therefore, the monopolists are outside the attention of the tax inspectors. “The shortcoming of the taxation system is that the responsible institutions do not want to get involved with the huge companies. They exert pressure on small and medium-sized businesses, because they are concerned with the shadow economy. The inspectors know very well the potential of all the producers. At the same time, the published date confirms that the level of the shadow economy remains very high,” the mayor of Yerevan Vaagn Hachatryan said.

 

It is noteworthy that in the first half of 2012, the 1000 biggest direct taxpayers (income and profit tax) paid about 34% more than last year. However, experts believe that the growth in tax payments does not indicate a reduction in the shadow economy. According to Grant Bagratyan, the government has to prove that the economy is not being centralized.  “In this case the direct taxes were collected only because the process of centralization in the economy continues and the biggest businessmen got larger possessions. If, one and a half years ago, the biggest supermarket chains in Yerevan controlled 30% of trade, now it's 72%. So the taxes had to increase not by 34% but by 134%,” Bagratyan believes. The other reason for the growth in tax payments is the growth in prices, that was planned at the 4% level but in reality was 3.5 times higher.

 

The struggle against the shadow economy in Armenia is aimed mostly at small and medium-sized businesses.  At the same time, big business is protected from tax pressure. This includes the oligarch-monopolists that are the basis of the ruling regime. Therefore, this struggle, including all the promises, is completely artificial, because it is very selective and lies in the political sphere.

 

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