Armenia’s government also faced more protests by market traders affected by a separate tax hike.
Various professionals as well as small-scale entrepreneurs have for decades been exempt from value-added tax (VAT) and profit tax set at 20 percent and 18 percent respectively, paying instead a single tax equivalent to just 5 percent of their annual turnover. Prime Minister Nikol Pashinian’s cabinet announced last year plans to phase out this preferential taxation that benefited some 50,000 economic entities. It cited the need to create a level playing field for all businesses.
Under a relevant bill that was passed by the Armenian parliament and took effect on January 1, some of those entities, notably law, accounting and consulting firms, are no longer eligible this tax benefit. The government began enforcing it despite vehement objections from many of the affected entities and lawyers in particular. Armenia’s Chamber of Advocates, the national bar association, organized the strike in a continuing effort to force the authorities to repeal the measure.
“In this way, we are trying to express our community’s discontent with the change in tax legislation which we consider unfounded and needless,” the head of the chamber, Simon Babayan, told a news conference.
Babayan said that many law firms, including the one owned by him, have already raised their fees by 20 percent as a result of the change. He claimed that they also can no longer afford doing pro bono work for low-income citizens.
Through the controversial bill, the government also raised from 5 percent to 10 percent the tax rate for those small-scale retailers that fail to produce documentary evidence of the cost of their goods purchased from wholesale suppliers. The rate will be cut to just 1 percent for those of them who show such documents to tax authorities.
Many traders selling clothing, jewelry items and other products in small shops and markets dismiss this incentive. Hundreds of them again rallied outside the main government building on Monday in Yerevan to protest against the tax hike. They argued that their suppliers are usually reluctant to certify the real prices of their goods without charging them more.
“If we do get such acquisition papers, our prices will go up,” one of the protesters told RFE/RL’s Armenian Service.
Although an official from Pashinian’s staff assured the protesters that the government will “meticulously look into all issues,” Deputy Finance Minister Arman Poghosian said in the parliament that their demands are not substantiated.
The government raised the taxes as it failed to meet its tax revenue target set by the 2024 state budget. The shortfall was expected to total about 200 billion drams ($500 million), a figure equivalent to nearly 8 percent of the target.
The worse-than-expected tax collection appeared to reflect slowing economic growth in the country. The Armenian economy was projected to grow by 5.8 percent last year, down from 8 percent in 2023 and 12 percent in 2022. The government has forecast a growth rate of 5.1 percent for 2025.