– Mr. Ayvazyan, last year information was published, according to which the government had developed a new package of tax law recommendations to the parliament for the purpose of reducing the VAT from 20% to 18%. Has there been such initiative?
– Yes, it mainly concerns the new package of tax legislation. The laws of this sector should be resumed in one tax legislation package. Yes, there is an initiative to reduce the VAT. If I were in charge of that I would do it long before. If we reduce the taxes, the economic activation will grow. On the other hand, the government needs money to solve its problems.
– The reduction of this tax would be compensated by the economic activation as you said.
– There is a standard of risk evaluation; if I were in charge of that I would certainly reduce the tax.
– Why did the government decide to reduce the tax in case when during the recent times the government has been strengthening the taxation load and policy?
– Maybe it is a little bit higher. They can reduce it and a little bit increase the income tax.
– Does this new package of recommendations envisage growth of other taxes in parallel with reducing the VAT?
– It will become clear when we discuss the specific part of the recommendation because it comes in one package.
– There are rumors that the property tax rate will be changed as well.
– According to the same package the property tax shall be increased as well. However I think it is more important to evaluate properties in a duly manner than raise the taxes. For example, an owner of one hectare land in the center of Yerevan would pay 2 million dram tax in case when the market price of one square meter of land is USD500-1000. Is it normal if someone has a property if 10 million dollars or four million dram but pays 2 million dram as property tax payment?
– Rumors say that the businesses of gasoline and cigarette import will be brought under the general taxation rule instead of paying fixed taxes. Is it an attempt to extract more tax payments from these businesses?
– It is a good decision and it is done in the entire world. If we are taking fixed tax from those businesses, it means that we are not able to control the flows of those businesses. If you are putting fixed tax on a business, it means you cannot control that business. Generally fixed taxes are adopted in the sectors where it is almost impossible to register the financial flows or control. We know the prices of petroleum, diesel oil and cigarettes. These businesses should be taxed according to the incomes they receive. It is not a secret that these businesses are getting super-profits, thus they should be taxed. Why are these businesses out of the general taxing mechanisms if all the other sectors are being taxed normally? Maybe at that time it was a problem and it was difficult to control the financial circulation but now it is time to tax these businesses under the common norms as well.
– Do you think that the prices of these goods will not be increased if taxed under the common rule? The experience shows that usually the tax load is eventually put on the heads of consumers but not businesses because they don’t ever want to refuse their super-profits. Don’t you think the prices of real estate may be increased as well in the result of increasing the property tax?
– I don’t think so because if the prices become more expensive, the level of consumption will fall. I don’t think the prices of real estate property may grow (in Yerevan). This change of property tax will not be approved this year. It may not even influence on remote regions because now there is a tendency of depreciation. No we should act in consideration of the market rules.
– Do you now see the economic effect of the tax package, which generated much noise and was adopted in the end of last year? You were the head of the commission, which gave a positive opinion about that package.
– This regime should be applied on 120 companies. According to the statement of the government’s representative, as a result of the application of this law package the government will cut 30 billion dram out of the shadow. Do you think it is possible?
– During the presentation of the report by the NA standing committee you said that significant changes are expected this year for the purpose of economic competition protection. Can you say any specific step that is being done for that purpose?
– The problem is that we are not implementing an anti-monopoly policy but an economic competition policy. The first one needs strict policy like an operation, and the second one is smooth and tries to create competition conditions. In our country the government does not prohibit monopolies but through economic policy tries to prevent damping and unjustified price change policies. However, it is another question whether these mechanisms are effective or no. Through this package we are trying to give more powers to the committee. The draft law has been approved by first reading and is in the second phase now. In a number of countries, including the USA, the policy of the government and laws monopolies are prohibited. As for the policy of economic competition protection, it punishes the businesses abusing or misusing their powers as result of having monopolistic positions. For example, for such violations businesses may be punished and obligated to pay 2% of their financial circulation.
– Are there going to be any new changes? Will any anti-monopoly law be adopted?
– The law on economic competition is being amended for the purpose of giving other powers to the economic competition committee. There is a group of experts as well, which has developed an anti-monopoly draft law. This draft is the preliminary version and is not circulated yet. The first draft law envisages better mechanisms than the existing law. For example, according to it for misusing the monopolistic powers a business may be obligated to pay not 2% but 10-15% as penalty. We want to give more powers to the committee to make decisions.
– Don’t you think Armenia needs more rapid actions such as adopting an anti-monopoly policy? The policy of taxing super-profits or applying penalties for misuse of monopolistic positions is not effective. Several years ago the penalty for this violation was lower than 2% and increasing this limit did not change the situation. The same monopolies and businesses make such violations all the time and pay this 2% to do it again.
– I can’t say, but theoretically you are right. It would be better to have mechanisms of independent economic demand and supply. We applied the mechanism of purchasing goods for the state, which was effective. However it is another issue whether this mechanism works effectively or no.
– Definitely this mechanism is not effective because as a result of monitoring the Supervisory chamber found out that the prices of the materials and goods bought for state purposes, mainly for construction, are higher than the market prices.
– Maybe we will receive the results of criminal cases launched by the low-enforcement bodies based on the results of findings provided by this chamber, but let’s be more objective. There is a problem with documentation because it is one thing when this purchase of goods is done with documents, and another thing when it is done without any documentation. All the processes according to this mechanism of state purchase are done with documents.
– You are speaking of a new initiative policy in the sectors of tax collection and economic competition, which seems to be a reform at first glance. However when we listen to the contradicting announcements of prime-minister Tigran Sargsyan we see that there is no such political will. In the end of last year Tigran Sargsyan said that the government should struggle against the monopolies, but later he announced that struggling against monopolies does not mean struggling against monopolists.
– He does not want to struggle against persons. The biggest mistake is to let people become monopolists in an economic system and later struggle against them. If we say it is a problem, we should struggle against the factors and conditions resulting in that problem but not persons. The law does not stop businessmen from having a privileged position in the market. They have made investments and appeared in the very active top of the economic system. What should we do? Should we struggle against those people and let others take their places?