The media is full of publications about the government’s session on Thursday and the debate between PM Tigran Sargsyan and the president of the State Income Committee Gagik Khachatryan.
During this session the government discussed the budget of 2012 and the PM said that the budget income part should be increased by 100 billion drams. The deputy minister of finance Pavel Safaryan said that the planned state income part was approximately 910 billion drams, 96% of which was tax incomes. This means that the main part of the expenses will be done based on internal resources, i.e. tax inflows. Why has the government decided to increase the budget income in this situation? The first justification is that the officials have decided to increase pensions and subsidies. The pension will be raised from 28.400 to 31.300 drams, and subsidies will be raised from 26.800 to 29.500 drams. It seems that it is a very nice goal and it deserves this tension, but every time by coincidence the government decides to increase pensions on the threshold of elections. However, there is another reason too and the PM spoke about it during the session. He said that the international donors (World Bank, IMF) are demanding from states to make efforts to discover their resources and make reforms. The countries that do this will receive more money from the donors. “Based on these principles we are negotiating with the International Monetary Fund. The more reforms, the more funding – these are the principles adopted by the European Union as well. This means that if we do the reforms fast, it will be very easy for us to solve the problem in 2012. The reason of the tension is the fact that it is already ten years that the International Monetary Fund pushes this issue in our government and asks us to improve the reallocation of financial resources through the budget policy. The relation of the income and expense part of the state budget is low in Armenia, and the board of directors of IMF discusses this issue every year. If the Republic of Armenia fails to increase the refinancing percentage through the budget policy, donors will refuse to provide additional resources to us, but these resources are available in Armenia. They ask why they should sponsor the state budget deficit if these resources are available in the Republic of Armenia, thus the authorities have to collect them,” said the prime-minister.
In a word, this means that the government wants to increase the tax incomes to attract more credits. The impression is that the priority of the government is borrowing money from outside. For this purpose the tax institutions should collect more money, and according to Tigran Sargsyan other state institutions should help the tax body to do this job. We wonder if the country has enough resources to foster the tax collection capacity. The PM said that there are such resources and even pointed out on the methods how this money would be collected. He says that as a result of reforms additional 10-15 billion drams can be collected. In consideration of the economic growth rate 4.6% the government hopes to collect more 40-50 billion drams even without changing the tax collection regime. This is where the head of the tax collection body G. Khachatryan flipped out and said, “Such growth of tax collection has never been planned in the history of Armenia, even more if it is a crisis period. We are very suspicious that such tax capacity may be collected.” This information was discussed in the media and several experts even think that there is a political agenda behind it and the prime-minister wants to assign a hard task to the chief of the tax department so that he fails and resigns. Whatever it is the head of the tax department is realistic and true that it is difficult to do that task. They are the ones that collect taxes and they know the real situation better than others who see everything through the windows of their offices. If they collect those taxes from monopolies, it will be accepted as a threat to the bases of the authorities. If they collect money from small and medium businesses, it will result in riots and discontent on part of the society. Anyway whatever they do, even if they do the task or fail it, anyway they will be criticized.
By the way, this story is repeating. In the beginning of his tenure Tigran Sargsyan increased the pensions to show that it is due to him being appointed PM. According to our information, at that time the officials of the tax department were again against that decision, but Tigran Sargsyan insisted on his decision and shortly they were faced with a problem and they were not able to pay the pensions. According to a source of information, in order to go out of that difficult situation they asked the director of Zangezur copper-molybdenum company to pay 9 billion drams to the budget as advance tax prepayment. In other words, the director of this large company gave a borrowing to the government to pay the pensions. Rumors say that this debt has not been covered yet. There a number of concerns and questions about this decision. The first question is about the relation of the taxes and GDP. It is very low in Armenia (below 17%) and international organizations always raise this problem. “It is a big problem to raise the relation between the taxes and GDP by 0.6% within one year. “The government has never taken on such a difficult task. With the IMF we have prepared a package of actions to be implemented for the purpose of discovering and taxing more to reallocate the financial resources received as a result of discovering and taxing incomes,” said Tigran Sargsyan.
It is really a difficult task but it is possible in Armenia as a part of the economy is shady, thus it would be done through tax reforms. We have to bring Georgia’s example again. In 2003 the relation of taxes and GDP was 7% in Georgia (at that time it was 14% in Armenia). As a result of reforms in 2004 this rate was increased to 15.4 in 2006, and now it is 22-23%. The most important thing is that there was no tax terror in Georgia. It was the vice versa as the tax tariffs were reduced, as a result of which the capacity of tax collection was enlarged. It means that the shady part of the economy was cut down and companies started to pay taxes. Only the implementers know why it is not done in Armenia too.