The 2007 state budget draft has been discussed at the National Assembly for the past eight days. Almost all the Ministries and State bodies are satisfied that the money given to them has increased. However the state Tax Inspection Bureau differs from them. The bureau doesn’t have too many reasons to be happy about because the burden for filling and completing the budget is almost totally on their shoulders – by 97.6%. We spoke to the head of the State Tax Inspection, Felix Tsolakyan to discuss the issues and challenges of the bureau.
– The primary and most important function of the tax bureau is tax collection. This is a major issue, due to which the work of the State Tax Bureau is estimated. Let me bring a few examples. During the nine months of 2006 the tax bodies have collected 154 billion AMD tax. As a comparison, it’s worth mentioning that in the nine months of 2006 this figure amounted to 124 billion – in 2004 – 101 billion. This means that the growth has been dynamic. During January-September of 2006 social payments amounted to 54.4 billion. In 2005 the social payments amounted to 45 billion AMD, in 2004 – 34 billion. The difference is more evident here. By the end of the year the social payments will be 74 billion AMD. In terms of social payment we don’t have any problems. Everything is accomplished for this year.
– How are the relationships with tax types?
– The balance of direct taxes has considerably increased. The profit tax amounted to 48 billion out of 154.4 billion, the income tax – 24 billion. The profit tax is 13 billion more compared to the same period of the previous year. We have increase in all types of taxes.
– This shows that the direct taxes made about half of the general taxes. How will this balance be next year?
– In absolute figures, we will have growth in all types of taxes. However I cannot say how the balance is going to look like. Besides, the budget is still in the phase of discussion and the final figures are not clear yet.
– According to the budget draft the taxes/GDP balance is planned to be 15,7% compared to 14.7% of the previous year. Finance Minister Vardan Khachatryan called it an “intending” balance. Do you think so too?
– Vardan Khachatryan chose the right phrase for that. In general, taxes/GDP ratio has developed very slowly in our country. We have never had high increase as planned by the draft 2007 – 1%. We all know that this ratio in developed countries is over 20%. However there is something important to mention when speaking about this ratio. That’s the structure of our GDP. For example, agriculture occupies a significant place in the GDP but it’s not taxed. Take some other country in the world as an example, which has 30% agriculture share in the GDP and compare it with us. There is no other country in the world that would give such privileges to villagers.
Another important sector that makes up the GDP is the construction sector, where we have issues in taxing private construction. There are other sectors like diamond production. These people start businesses, increase the work force but don’t pay taxes to us because they are tax exempt.
– We have a quite large system of privileges – “Millennium Challenges”, “Lindsay Foundation”, etc. These are also included in the GDP, right? So if we take all these things into account we’ll see that our ratio is not too bad.
– Plus in general, let me mention one thing as a response to all the criticisms. We have an assignment to collect a certain amount of money and we do that. No matter how much we are criticized, we do our job and complete our tasks. We have never had a case over the period of the last four years that we wouldn’t be able to accomplish our mission. We also have mistakes and omissions but we try our best to correct them.
– Months ago the government presented a package of legislative amendments to the NA having to do with taxation of multi-apartment buildings. Will this law affect the tax collection somehow?
– It sure will. The law has been adopted by the first reading. We wasted quite a lot of time in developing the legislative changes and faced many problems.
With the new law the physical person may build a building. After the construction the law allows him to manage 10% of his building and not more than 500 square meters because the 10% may have a very large space. We are saying – build this 500 square meters for yourself. That is, we don’t tax for the 500 meters, the rest should be taxed. The builder must show his calculations in a right way to conform at least the prices estimated by the state property cadastre service. They cannot tell us they sold it at 50 USD for a square as they do now. There are builders who build many cottages and houses and register them on their relatives’ names, like the mother-in-law or somebody else. We tell them, if you want to build 4 cottages, great, but you have to pay taxes.
– Mr. Tsolakyan, recently somebody expressed an opinion in the media that it’s pre-election year and Armenian oligarchs are going to avoid paying taxes and invest that money in the campaign; thus not a lot of money will be going to the budget. Do you fear that?
– My work experience has shown that one can fear a lot. But I don’t think that these people only think what to do, to spend money to become deputies. That same person, who wants to avoid paying taxes, knows perfectly that by paying taxes he will have a better image and will occupy a high place in the list of taxpayers. People have changed; they don’t want to use the same methods they were using in the past. They wish to live in a more civilized country. Of course, oligarchs pay taxes but the taxes paid by the others put together are much more. If we don’t work with others normally and only focus on 20-30 big taxpayers we won’t have much success and won’t be able to add money to the budget. I am more inclined to believe that tax inflows will be higher because of the pre-election year.
– Do you mean that the businessmen will use the list of greatest taxpayers as PR during the campaign?
– The list is used even now. People have started to pay a lot of attention to their positions in the list. They argue with our specialists by saying that they have paid money but it’s not shown in the list. For example, there are exporters, whose taxes are later returned. They are not visible in the taxpayers’ list. And we tell them that only the factual taxpayers appear on the list. They tell us that our list is wrong. The copper producing company of Zangezur is not an exporter but a great taxpayer. The exporters give him the money to pay us. If we considered the ones, whose taxes are returned later by the state we’d definitely have three large exporters in the list.
– This means that companies are interested in being in the taxpayers’ list.
– Of course they are. There are many taxpayers, who wish to meet and discuss those issues. Besides that we pay a lot of attention to tax types. There are cases when somebody pays large taxes and is in the taxpayers’ list but we suspect him due to his low direct taxes and start to inspect his company. But the taxpayers, whose business calculations match the amount of tax he pays, we don’t suspect him.
– Why do your bureau, the media and taxpayers have a great interest in the taxpayers’ list and the finance minister Khachatryan isn’t aware of the list?
– I don’t think Khachatryan is not aware of thsi. We don’t have time to survey those lists in detail. By the time we are done with one list it’s time for the second one. You will feel the difference in December.
– But what’s the difference?
– Pay attention to the ones who are planning to run offices. They will certainly try to show themselves in the taxpayers’ list in December. There are great taxpayers, who are represented by a few large companies. Sometimes they complain why they are presented separately. I’d like to say that when examining the list it’s important to be careful to keep track of how much the given businessman is going to pay. It’s necessary to add the taxes paid by the companies and compare them with the index of the last year. What’s our point? To raise taxes or humiliate the reputation of certain businessmen.
– However, it’s hard for journalists to know whom the company belongs to, since the names of taxpayers are not mentioned in the list.
– Yes. It’s not right to publicize names of business owners because many of them are not the real owners. The deputies don’t have the right to manage businesses. That person won’t be shown anywhere. If we write certain names they might complain saying that they are not the real owners. We are not tying to support or hinder someone. We just want to show that everything must be done consciously. There are a lot of things that can be criticized. However, the criticism must be objective and humane. Some people say that we are going to collect more taxes because there is a black market and we are trying to fight against it. What’s better? To leave things the way they are or fight? If we become extremely strict to all the stores many of them will just shut down. We are trying to do things smoothly. There are limits to everything.
– It means that the indices are not the only important things.
– Indeed. Our work makes us deal with the destinies of thousands of people. It’s not only about making calculations in our offices or collecting money. There is an appeal/complaint committee. There are people, who do not agree with the acts written by us. Some numbers might be missing during discussions, extra meetings might be appointed. We are not trying to harm anybody’s business. Of course there are people who avoid taxes in a very unnoticeable and professional way. But even so the tax bureau doesn’t have any intention to destroy those businesses. People often don’t see and understand that.
– In terms of fighting against corruption, the law on publicizing physical persons’ property was signified. The law is already adopted. How do you think that will help the fight against corruption?
– Let me first say that the law enables us to supervise. There are concrete mechanisms regarding not only the publication note but also the contents. We can’t surely say how this law is going to function because we don’t have the right order of its application yet. Our specialists are currently studying those mechanisms in the USA, the order of punishment, etc. The current penalties are very mild and moral. It would be wrong to say that there is no corruption in countries, where this mechanism works. Yes, we may say that this law is a serious lever for fighting against corruption. But again corruption won’t be annihilated only by this law.
– Recently there are rumors about the super profits of large importers due to the AMD revaluation. There are recommendations for adopting a law on taxing super profits. Is the tax bureau planning to come up with a new legislation?
– That’s not an urgent issue for us right now. I don’t think this must be regulated by the law. The current laws may be slightly changed. However, on the other hand this is not our issue. This issue must interest the minister of finances and economy more. It needs to be analyzed by different people. But I agree that if somebody makes super profits, he must be taxed. As to how the tax should be collected, that’s a different story. Perhaps the current laws are not properly endorsed and there is no need for new laws.