Traders and owners of other small businesses have long 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. The government announced last year plans to phase out this preferential taxation that benefited some 50,000 economic entities. A new law enacted by it recently excluded some of those entities, notably law, accounting and consulting firms, from this tax benefit and raised the tax rate to 10 percent for the others.
Hundreds of traders selling clothing, jewelry items and other products in small shops and markets demonstrated outside Prime Minister Nikol Pashinian’s office in recent weeks to demand that the government repeal the tax hike effective from January 1. They said that they already have trouble competing with larger stores and shopping malls as well as rapidly growing online retailers.
The government rejected their demands, citing the need to create a level playing field for all businesses and reduce tax evasion. Still, it made a temporary concession during a weekly cabinet meeting chaired by Pashinian. It said that the traders can get back the extra taxes to be paid by them in the first half of this year if they apply for the rebate electronically.
“Taking into account the views, concerns and discontent of our dear economic entities, we are essentially introducing a six-month transition period,” Pashinian said during the meeting. He said they will thus have more time to familiarize themselves with the new taxation rules.
Hakob Avagian, the leader of an Armenian small business association, welcomed the decision while insisting that the tax hike must be suspended altogether pending in-depth discussions between the interested parties.
“This is only one of the issues raised by us,” Avagian told RFE/RL’s Armenian Service. “They haven’t addressed the other issues. They are trying to solve one issue while complicating things further.”
The government decided to raise the taxes late last year 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 Armenia.