Tax Code Debate: Entrepreneurs want ‘long-term predictability’ to be addressed in new legislation

Photo: Photolure

The new Tax Code, initiated by the authorities of Armenia, will contribute to increasing transparency in tax collection; it will make the field more predictable and will reduce the risks of corruption, say authors of the draft Code, as well as representatives of international financial organizations.

However, even this Code will not solve many problems, whereas many issues can be solved even without legislative changes, believe participants of the debate on the Tax Code.

Head of the Association of Accountants of SME of Armenia NGO and tax board member Vahagn Hambardzumyan said that the new Tax Code is important because it will coordinate all tax legal-regulations in one document.

“There has long been a demand for such a document,” Hambardzumyan told media at the Economic Journalists Club on Wednesday, adding that the document, in one package, defines rules of the game, by which the state and taxpayers should be guided.

The tax board member believes that the new Tax Code drives out the element of subjectivity from the relationship. According to the changes, a full transition to an electronic system of charging and paying taxes is provided. “In other words, the contact between a taxpayer and an employee of the tax authority has been nullified. We have always had a problem of how to make a tax inspector even unknown to a businessman.”

Teresa Daban Sanchez, the head of the International Monetary Fund (IMF) office in Yerevan, is sure that the new Tax Code that implies a complex implementation of the reform of legal relations between the state and private enterprises is very important for further development of Armenia’s economy.

“Since Armenia became independent, many legislative acts, represented both as government decisions, and as other initiatives, were implemented to regulate the tax system. As a result, sometimes, significant differences and contradictions, which were causing problems for businesses, used to emerge even between these legislative acts. The development of a new tax code proceeds from the necessity of harmonizing them,” said Sanchez during the discussion.

“The new initiative will not only have to increase the efficiency of the tax policy, but also to make it more transparent and predictable, to conform the system with international standards, which will firstly contribute to business development,” she stressed.

According to Sanchez, if the new Code enters into force, it will solve several important problems: expansion of tax collection, which will provide the state budget with an opportunity to plan larger expenses, transparency, compliance with international standards, and predictability of the tax field, which will greatly increase investment.

Paylak Tadevosyan, the head of the Protection of Taxpayers NGO, however, said that, first of all, the weaknesses of the Code should be discussed. He is not convinced that the new Code will ensure the absence of any further changes, since only a wish would be enough for not making them, even without the adoption of the new Tax Code.

Another problem, according to Tadevosyan, is the issue of predictability. “The justification of the Code states that it will provide long-term predictability for taxpayers, but there are no guarantees for maintaining that stability: there are only promises.”

“A businessman, who carries out an investment, needs to be sure that the rate, the tax base, the administrative tools won’t change for a durable time. If he does a 10-year investment, but the base changes in two years’ time, there is no difference. In the case of some organizations that profit may make up 29 instead of 20 percent,” he added.

The bill, which has been discussed since last October, is currently in the National Assembly. It is expected that the document will be adopted next fall. The changes will take effect gradually. The code will fully be effective in two years.