Armenia's Deputy Finance Minister Proposes Tax Reforms for Non-Compliant Businesses
The Armenian government is planning to tighten tax regulations for small and medium-sized enterprises (SMEs) by reducing tax benefits for those not adhering to compliance standards. Deputy Finance Minister Arman Poghosyan announced that the proposed changes to tax legislation will exclude several profitable sectors from the microbusiness tax regime.
While the final draft of the legislation is still pending, the concept is set to increase the turnover tax for SMEs, aligning it more closely with the tax structure for larger businesses, which includes both profit tax and VAT. The turnover tax, initially introduced over a decade ago as a simplified regime for businesses with annual revenues up to 15 million drams (approximately $295,000), has proven to be significantly more lenient than the standard tax regime.
To address this disparity, the Ministry of Finance intends to raise the basic turnover tax while offering reduced rates for compliant businesses that accurately report their earnings and fulfill their tax obligations. Poghosyan emphasized the need for a substantial difference in tax rates to incentivize adherence to regulations. The Ministry has engaged in discussions with the State Revenue Committee, and preliminary assessments indicate that tax inspectors will have adequate resources to monitor SMEs effectively.
Furthermore, the Ministry is reviewing the microbusiness regime, currently applicable to entities with annual revenues up to 24 million drams (just over $60,000), which are presently exempt from taxes. Recent changes aim to curb the misuse of these benefits, particularly concerning large businesses purchasing from microbusinesses. The proposed adjustments are expected to generate an additional 2.5 to 3.5 billion drams (up to $9 million) in tax revenue for 2023.
While the Ministry considers excluding more profitable sectors from the microbusiness regime, specific sectors have not yet been identified. Currently, microbusinesses in Armenia cannot include entities in finance, legal services, advertising, marketing, translation, engineering, medicine, and certain retail and catering businesses operating in Yerevan. There are approximately 53,000 microbusinesses in Armenia, employing around 35,000 workers, many of whom operate as self-employed individuals.
While the final draft of the legislation is still pending, the concept is set to increase the turnover tax for SMEs, aligning it more closely with the tax structure for larger businesses, which includes both profit tax and VAT. The turnover tax, initially introduced over a decade ago as a simplified regime for businesses with annual revenues up to 15 million drams (approximately $295,000), has proven to be significantly more lenient than the standard tax regime.
To address this disparity, the Ministry of Finance intends to raise the basic turnover tax while offering reduced rates for compliant businesses that accurately report their earnings and fulfill their tax obligations. Poghosyan emphasized the need for a substantial difference in tax rates to incentivize adherence to regulations. The Ministry has engaged in discussions with the State Revenue Committee, and preliminary assessments indicate that tax inspectors will have adequate resources to monitor SMEs effectively.
Furthermore, the Ministry is reviewing the microbusiness regime, currently applicable to entities with annual revenues up to 24 million drams (just over $60,000), which are presently exempt from taxes. Recent changes aim to curb the misuse of these benefits, particularly concerning large businesses purchasing from microbusinesses. The proposed adjustments are expected to generate an additional 2.5 to 3.5 billion drams (up to $9 million) in tax revenue for 2023.
While the Ministry considers excluding more profitable sectors from the microbusiness regime, specific sectors have not yet been identified. Currently, microbusinesses in Armenia cannot include entities in finance, legal services, advertising, marketing, translation, engineering, medicine, and certain retail and catering businesses operating in Yerevan. There are approximately 53,000 microbusinesses in Armenia, employing around 35,000 workers, many of whom operate as self-employed individuals.