“The Armenian Businessmen Work in Shadow because it is Profitable: Experts”
The official figures of Armenia during the first quarter of 2017 show that there is an increase in taxes, which, according to the same figures, is mainly due to a reduction in the "shadow" of the big companies

Based on State Revenue Committee (SRC) reports, the shadow comprises 33.2 percent of the large taxpayers, and according to experts, the shadow economy in Armenia accounts for around 30 percent of GDP.

“Increase in taxes is due to the reduction in the shade of large taxpayers. RA Tax Service set a high bar. Due to this year's forecast, it turned out that exceeding its revenues the Tax Service raised the threshold, and the government will require to collect 50 billion AMD more for this year,” Babken Tunyan, Economic Commentator of “168 Hour” Newspaper, Founder of b4b.am platform, said this during the discussion at Media Center on May 18, adding that the steady growth of tax collection can also affect economic activity. “If money is withdrawn even from the shadow economy, while new investments are not made in Armenia, it will affect the economic activity,” he said. 

Vardan Harutyunyan, Chairman of State Revenue Committee, presenting the work conducted during his tenure of seven months, said that a continuous growth of tax revenues was fixed each month. “For the past 7 months, that is, from October 2016 to April 2017, State Revenue Committee provided 653.8 billion AMD tax revenues. Compared with the same period of the last year, revenues have increased by 46.1 billion AMD or 7.6 per cent,” he said during the press conference today.

He presented data about the shadow among the “sharks” of RA economy in percentages. “At the end of December, 2016 the shadow among the large taxpayers was estimated at 48.8 percent. Now the shadow has decreased, particularly in March it stood at 33.2 percent,” he said, adding that due to the consistent reduction of the shadow, the monthly average shadow of risky taxpayers has fallen by 32%.

Tunyan says that one should understand a simple truth - businessmen mostly work in the shadows because it is more profitable. “Therefore, it is important that the tax burden is not so high in order it becomes more profitable to work in the shadow of the field. The businessman or citizen remains in the shadow if the expenses are less than in the case of the legal field. If one considers that to give a bribe to the tax inspector is more profitable than the tax burden, he will remain in the shadow. Tax payments should be so much that they are not a burden on business. Competitive equal conditions are also important,” he said. 

Hrant Mikayelyan, Caucasus Institute Expert, Author of “Shadow Economy in Armenia” Book, presented his remarks on the scale of the shadow in RA economy and on the issues related to its taxation. Due to him, based on the data of March, the shadow comprises 29, 7 per cent in Armenia. “According to my calculations, the shadow economy was reduced by 7%, not 14%. And the 10, 5% increase of taxes involves 7% economic growth, 1% inflation and only the rest refers to the reduction of shadow economy,” the speaker said.

The speakers emphasized the importance of a comprehensive approach, that is, in line with the reduction of the shadow economy, it is necessary to improve equal competitive conditions and attract investments. Otherwise, it will be difficult to avoid the negative effects on economic activity. At least in the first quarter of this year, the growth in economic activity comprised 6.6 percent, and the government plans to attract investments of about $ 800 million.

To achieve this goal, “Investors’ Club of Armenia” composed of Armenian Diaspora entrepreneurs was set up and “Armenian-Russian Investment Fund” was established with the Russian Federation. 

Meanwhile Hrant Mikayelyan is not convinced that investments have increased as much as the Government states. He says that the important thing is what economic policy the Government runs. “The external context is important. If Russia, which has been a major investor in the Armenian economy, makes no investments today, the Government's policy has nothing to do here. As for the EU countries, Georgia has already signed the association agreement, is closer to Europe in terms of transport and the logistics delivery costs of a truck are 10 percent cheaper than in Armenia. Clearly, it is more profitable for entrepreneurs to work in Georgia.”

Babken Tunyan considers the high level of dollarization a worrisome problem for Armenia's economy. This is also the reason why we should not pin great hopes on the refinancing rate set by the Central Bank. “To pin great hopes on refinancing rates and to say that the economy will grow as a result of it is a mistake. To do business with bank loans leads us to destruction because the interest rates are too high in our country. The reduction of the refinancing rate, which currently stands at 6%, will not be affect the dollar loans, the volume of which is quite high,” he said.

Now, according to speakers, two circumstances mainly contribute to the economic revival in Armenia. First is the growth of exports, which comprised 16.5 percent in the first quarter. Second is an increase of 14 percent running remittances in the first quarter of 2017 after the continuous fall of the last two years which amounted to 312.9 million dollars. The growth of private transfers from Russia, which is the main transfer “donor”, reached 100 million from 50.5 million that is, immediately doubled.

To watch the video, follow the link.  

Arshaluys Mghdesyan, editor/events coordinator at “Media Center”

To contact the author please send an email to arshaluismghdesyan@pjc.am.

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