According to the minister of finances of Holland, Garet Zalm, they discussed issues concerning the IMF strategy, budget and taxation policies, problems concerning transitional countries, increasing production and employment rates.
The Holland group consists of 12 countries: Armenia, Holland, Bosnia and Herzegovina, Bulgaria, Israel, Khorvatia, Cyprus, Macedony, Moldova, Georgia, Romania and Ukraine. The population of these countries covers 150 million and their share in the IMF covers 5%.
According to G. Zalm, the rapid economical growth of Armenia is impressive but this is a common rate in transitional countries. ““Only transitional countries can have 14% economic growth. But in the future, you will have to go along with lower growth marks even if you have the potential to grow economically”, said the minister of finances of Holland, Garet Zalm. In spite of this, according to Armenian specialists this mark is very low if we take into consideration the large number of foreign transfers made to Armenia.
A colleague of Mr. Zalm, the minister of development cooperation of Holland, Agnes Van Arden, said that Armenia’s economic growth was very important and that Holland has been working with Armenia ever since the country declared its independence. “If Armenia goes along with its economical policy, Holland will grant Armenia a sum equal to $5 million”, said Mrs. Arden and added that it was more important for them to support investments directly than just provide money. “I am petitioning all businessmen to approach Vardan Khachatryan and ask him questions concerning the business programs”, said Mrs. Arden, who definitely didn’t know that it was very difficult to approach ministers and ask them questions in Armenia. They think we are too smart.
The IMF report states in detail about economic factors such as “Real GDP growth”, “Controllable inflation”, “Struggling against poverty”, etc. It is normal to see the negative and positive factors. The negative factors concern the financial and taxation fields. According to IMF, Armenia’s financial sector is not developed and that is clear when we look at the small number of banking actives in GDP. The next undeveloped field is taxation. The capacity of tax collection in GDP covers only 14,3%. This mark is the lowest one out of all the CIS countries.
According to IMF representatives there are four reasons for this problem (tax collection). According to them, one of the problems is the taxation law on direct taxes adopted in 2001, which cut down tax flows. The next reason is the wasted privileges given to foreign investors. According to them, the $500.000 investment limit for privileges is very low. “These taxes that are not taken due to privileges may cover over 0,5% of GDP, in addition, these privileges don’t play a big role in recruiting foreign investments in Armenia”, as stated in the report. The next problems are the fact that foreign grants are not taxed and the high level of interest rates. “The two agencies (state taxation service and customs committee) know who to collect taxes from and as a matter of fact, they compete with each other. This competition creates a maximal trend of tax collection in short periods, investigations and customs bodies hand over more responsibilities to payers”, writes the report.
The RA minister of finances and economy, Vardan Khachatryan was also there and he gave an original explanation to this issue, “GDP grows faster than we think, thus creating a difference in percentages”. According to V. Khachatryan, the main problem is enlarging the taxation. He mentioned two more reasons too, “Agriculture and construction cover most of our GDP, and these fields are not taxed” (he means private constructions).
In fact, he explained why the rapid economical growth (as some people say it grows just like a tiger jumps) doesn’t change the living standards of citizens. This means that our economic growth is not so good from the quality perspective and it doesn’t really affect people’s lives.