A government bill approved by the Armenian parliament earlier this year requires private firms and individual entrepreneurs to carry out transactions worth more than 300,000 drams ($700) only through the banking system.
For other citizens the limit is set at 500,000 drams. But it will be brought down to 300,000 drams in July 2023.
The law, which will come into force on July 1, also prohibits local and central government agencies from making or accepting any payments in cash.
It envisages a similar, albeit gradual, ban on payments of all medical and education tuition fees as well as private sector wages. The ban will first apply to Yerevan and be extended to the other parts of Armenia over the next two years.
Prime Minister Nikol Pashinian touted the impending entry into force of these restrictions during a cabinet meeting last week. He said that his government will also ban cash payments for real estate and cars.
The head of the State Revenue Committee (SRC), Rustam Badasian, confirmed that these measures are aimed at reducing the still sizable informal sector of the Armenian economy. They will result in a “certain increase in tax revenues,” he said without making concrete financial projections.
Garegin Gevorgian, a senior official from the Armenian Central Bank, was likewise confident that restricting the widespread use of cash as a payment method will improve tax collection.
Central Bank data cited by Gevorgian shows that payments made in Armenia via bank transfer, check and credit or debit card have steadily increased over the last 12 years. Still, they accounted for only a quarter of all transactions last year.
Suren Parsian, an independent economist, welcomed the government efforts to curb cash transactions. But he said the authorities should do more to raise public awareness of the upcoming restrictions and help small and help medium-sized businesses prepare for their enforcement.
One small business owner, Garegin Gevorgian, criticized the limitations, saying that many such firms will have to pay more taxes and banking fees. Their tax burden could be doubled as a result, he claimed.
Individual car traders are also concerned. As one of them, Tigran Hovannisian, explained, “We are going to have disputes with buyers. A buyer will say that ‘I won’t transfer the money until you register the car in my name,’ while I will say ‘I won’t register it in your name until you transfer the money.’”
There are also questions about the authorities’ ability to enforce the new rules in car and property transactions. Real estate agents warn that home buyers and sellers may formalize their deals as free donations but carry out them in cash to evade taxes.