Some positive news…
Radio Free Europe / Radio Liberty’s Armenia Service reports that the IMF is satisified with Armenia’s fiscal and monetary policy and is negotiating a fresh loan with the Armenian Government. However, the news report also highlights the growing need to tackle the significant problem of government-connected businessmen and oligarchs avoiding paying their taxes.
McHugh added that the IMF officials will be specifically pressing the government to crack down on large companies which he described as Armenia’s “genuine tax evaders.” In an extensive report on the Armenian economy released last November, the IMF suggested that profit taxes paid by them could easily be tripled.
Many of the big businesses are owned by government-connected individuals and are believed to be highly lucrative. However, they routinely post financial losses. Economists regard them as the prime beneficiaries of Armenia’s economic growth which, according to official figures, continued at a robust rate of 10.1 percent last year.
In December and January, President Robert Kocharian admitted that this was the case and promised to crack down on both tax evasion and rampant corruption within the tax and customs agencies. Hopefully, during 2005, we will see signs that such a statement was genuine and not merely declarative.
Makes sense - if the tax revenue growth rate lags behind the GDP growth rate, then the government’s ability to tax income is inadequate.
Sometimes one can find articles in the press and also statements by politicians attacking the official economic growth figures as distorted, for whatever reason. What they fail to understand is that the GDP growth is not distributed equitably, nor can it be expected in a market economy (as Michael Douglas says in the movie Wall Street, ‘Greed is good’). What should be expected is that the increased corporate profits and personal incomes must be taxed by the government - something that is obviously a problem in Armenia.
In reality, the top businessmen must also realize that they are better off paying taxes, since by paying less they enter into a compact with corrupt politicians and expose themselves to risk of extortion (for electioneering, for gifts etc). The immediate payoff may be significant (land plot, forested area for dacha, etc), but the long term effect for the business people is zero when all the bribes accumulate. After all the Armenian tax rates are not so high - is it 20% or 25% in the top bracket?
Comment by Hovakim — 2/19/2005 @ 2:34 pm
Երեւի Հայաստանի մեծ ընկերություններին շուտով պետք գան ոչ–օգտի–համար ընկերություններ
Comment by Հակոբ — 2/19/2005 @ 2:48 pm
On the other hand, Hovakim, many of those top businessmen are sitting in Parliament and so another possibility is that it is the government that might be at risk from extortion during elections etc. In fact, when it comes to the oligarchs, I wonder if their “political” power (only in the sense of money is power) is not beginning to threaten politics in Armenia. If so, will we see attempts to reduce that power and political influence or not.
I hope so, and I hope the President is genuine in his declaration and has the power to do something. I think these are the issues that determine whether a state can function or not. As you point out, the problem in Armenia is the distribution of wealth. This is a problem everywhere of course but in countries such as Armenia and every other CIS republic one guesses, it is especially pronounced with their being very little middle ground between the filthy rich and the ridiculously poor.
Let’s see. The opposition are again talking about protests and regime change this April but as we mentioned in a previous discussion, the situation is not the same as last April (no one year deadline passing for the suggested referendum of confidence) and the lesson of Ukraine and Georgia was that something can change when people stand up for their rights and there is outside interest at times of elections.
Personally, I’d say that if the Government showed the political will to do something about these kind of problems during 2005, then this is a significant opportunity for real progress. Many here tell me that it won’t happen, of course, because everything rotten is part of the same system but I can but hope and monitor what happens just in case this time, we’re lucky and it’s not all merely declarative (which will add to discontent if this is the case).
Let’s see.
Cheers,
Comment by Onnik Krikorian — 2/19/2005 @ 3:22 pm
Hagop, I don’t understand. Are you trying to be sarcastic? If so, nobody is saying that commercial companies should not make a profit. What they are saying is that if a company makes a profit they should declare that this is the case and pay their taxes. Otherwise, the state budget suffers and normal citizens continue to also avoid taxes and the whole country suffers as a result.
I think this was part of what went wrong in Georgia around 2001 and certainly picked this up as a main source of complaint from Georgian citizens in Spring 2003. That is, the government hassles us for taxes on already low salaries but lets the big boys get away with. As a result, people hide their incomes and discontent grows with the government and the state can not fulfil it’s budgetary requirements.
I actually consider this a huge issue in whether a country can sustain itself or not and also, whether it is internally politically stable or not.
Still, if you were just joking, then okay. I mean, I can hardly see that anyone can justify large commercial companies, many of them owned by oligarchs and government ministers, using their connections and illegal activities to make HUGE sums of money and then not at least give something back to the country in the form of taxes on that profit.
When this happened under LTP, I’m sure you were extremely vocal in your condemnation of it (it is after all, corruption) so I don’t suppose that your opinion has changed under a different President.
Comment by Onnik Krikorian — 2/19/2005 @ 3:35 pm
Հակոբ,
It’s not «ոչ–օգտի–համար» - they are called in Armenia շահույթի նպատակ չհետապնդող ընկերություն
Comment by Hovakim — 2/20/2005 @ 12:05 am
Nice one Hovakim.
Comment by Katy — 2/20/2005 @ 4:31 am
Isn’t there the suspician that people like Dodi Gago are merely fronts for Kocharyan and Serj Sarkisyan’s business interests? If this is true, can we really expect the president to come down hard on the “real tax evaders” when he’s one of them? Just a thought.
Comment by GH — 2/20/2005 @ 7:37 pm
I’ve heard those rumors as well but it’s difficult to know if they’re true or not and in fact, even if they are true it’s difficult to prove. Regardless, given the system in place in Armenia, I’m also slighlty skeptical whether the tax authorities will come down on those large businesses and individuals under-reporting their incomes, avoiding taxes and even posting losses. I was told yesterday, for example, that the average yearly consumption of beer in Armenia is 1.5 litres per person which sounds slightly dubious to me and probably more likely that beer companies, are not reporting and paying taxes on the actual amount they produce and sell.
Still, we have to hope that 2005 will be different.
Cheers,
Comment by Onnik Krikorian — 2/20/2005 @ 10:50 pm
I am a little suspicious of all this hoopla about new IMF loans. Armenia is already very dependent on outside governments. More IMF loans mean more US influence over Armenia.
Comment by Hrair — 2/22/2005 @ 3:24 am
Hrair, I’m also a little bit confused when the IMF says that Armenia doesn’t actually need this loan. Okay, so some credibility might be one benefit but the loans still have to be paid. The ideal situation in any country, however, is that loans don’t have to be taken out in the first place so if the Government had a choice not to take it because it didn’t need it…
Comment by Onnik Krikorian — 2/22/2005 @ 7:22 am
Good site! Thanks.
Comment by Connor — 6/12/2006 @ 3:02 am