Oligarchs and the State Budget
In an always interesting analysis, Emil Danielyan of Radio Free Europe / Radio Liberty’s Armenia Service writes for the Jamestown Foundation that some of Armenia’s richest men are not giving something back to the state. No kidding…
Nevertheless, Danielyan’s piece is perhaps the first article and analysis in the English language that says it how it is.
Proceeds from tax collection made up less than 16% of Armenia’s GDP last year, a very small proportion even by ex-Soviet standards. The resulting government budget, worth about $600 million in 2004, was thus nowhere near enough to meet the public sector’s basic needs.
[…]
Late last month, the authorities published the first list of Armenia’s 300 largest companies along with the amount of various taxes paid by them. Two-thirds of them paid less than $20,000 in profit tax during the first quarter of 2005.
The list had some glaring omissions, including several of Armenia’s most lucrative firms. Gagik Tsarukian, arguably the wealthiest man in the country, owns more than 40 medium and large companies. Only a handful of them were on the list and only one of them, a Yerevan-based winery, posted any earnings. Its first-quarter profit tax of nearly $20,000 is less than the price tag of any of the dozen cars that normally make up Tsarukian’s motorcade.
Tsarukian’s business empire has seen an incredible expansion in recent years. The former arm-wrestler started out as a minority shareholder in one of Armenia’s two largest breweries in the late 1990s. The brewery has claimed to be loss-making since then, and it is not clear how exactly the unusually beefy tycoon, who is very close to the ruling regime, has earned his millions. Some local observers suspect that more powerful individuals are behind Tsarukian’s businesses.
Interestingly, I spoke to the head of an international organization in Armenia today and he said the same thing. My take is that a lot of the problems afflicting Armenia could be resolved if some of the wealth was spread around as the law dictates…
Anyway, the full article can be read online here.
The profit and VAT tax receipts are only half of the story. It is not difficult to reduce the profit tax, and in fact most companies anywhere in the world do just that. You would be surprised at how little the greatest multinational companies end up paying in taxes in the United States (for example, because shower curtains for CEO’s are deducted as business expense).
The key difference is the personal income tax. For parliamentarians and government officials at the level of department chief and higher, there’s a requirement to publish an annual declaration of income and taxes also in April. This, in principle, should be available from the State Tax Service, and is published in the Official Gazette.
If one looks at the declaration and sees a clear discrepancy between the lifestyle and the declared income, there’s a great story there.
Btw, it’s interesting that we see how Armenia is suffering because the Government is unable to collect more in personal income tax from wealthiest individuals, and ends up taxing indirectly which affects the poorest people. Well, Mr. Bush here in the U.S. is trying to do just that: the Republican Party/neocon platform envisages eventual reduction or even elimination of personal income tax in favor of VAT.
Comment by Hovakim — 5/9/2005 @ 10:48 pm
Hovakim, I don’t disagree that the issue of taxation is a sore point all over the world but you know that the Dodi Gago’s, Lfik Samo’s etc aren’t quite the same as the top businessmen in the US. At least tax collection is high in the UK and US and if a successful businessman is riding around town in an Hummer with an armed escort, the FBI or Police is called in to investigate if they post little or no profit. This is the difference. However, if you were to compare 1920’s Chicago with today’s Yerevan then I’d agree to some extent.
Only some of the way, however, because the law enforcement agencies are not even trying to go after these guys and even when their bodyguards beat up journalists like they did last year, they get away scot-free. Probably, I’m waiting for the day which I think will come soon enough (certainly by 2007 and the next scheduled Parliamentary Elections) when even the Government understands that Armenia should not be ruled by these people which is effectively the case at the moment.
Parliamentary immunity? This is precisely why these guys are sitting in the National Assembly…
Comment by Onnik — 5/9/2005 @ 10:58 pm
BTW: As for the Parliamentary Declarations of Income, we know that’s a crock of shit. Like how Grzo declared his annual income at $60,000 and said he didn’t own a car when we know he owns a fleet of luxury (westen european) vehicles…
Comment by Onnik — 5/9/2005 @ 11:07 pm