Armenia's Government Introduces Tax Code Revisions to Harmonize Taxation Systems
On May 2, 2024, the Armenian government, led by Prime Minister Nikol Pashinyan, convened to discuss critical legislative reforms. The government approved amendments to the Tax Code of Armenia aimed at narrowing the gap between the tax burdens of the turnover tax system and the general taxation system. These changes are intended to enhance documentation of business expenses and improve the targeting of tax systems for small and medium-sized enterprises (SMEs).
The proposed amendments suggest a revision of turnover tax rates for key business sectors, allowing reductions based on documented expenses. Finance Minister Vahe Hovhannisyan stated that the amendments propose to double existing sales tax rates for primary activities. Furthermore, there will be provisions to lower turnover tax based on verified costs, which is currently not permitted. For compliant taxpayers, the final sales tax rates could be reduced: from 1.5% to 1% for commercial activities, from 3.5% to 3% for manufacturing, from 4% to 3.5% for food services, and from 5% to 4.5% for other sectors. Additionally, the government plans to limit alternative taxation systems, specifying that notarial, legal, and lottery activities will not be eligible for the turnover tax system.
Prime Minister Pashinyan emphasized the need for these reforms, arguing that the turnover tax system distorts the economy and creates inappropriate incentives. He indicated a strategic goal of gradually phasing out the turnover tax system to establish proper business incentives.
The proposed amendments suggest a revision of turnover tax rates for key business sectors, allowing reductions based on documented expenses. Finance Minister Vahe Hovhannisyan stated that the amendments propose to double existing sales tax rates for primary activities. Furthermore, there will be provisions to lower turnover tax based on verified costs, which is currently not permitted. For compliant taxpayers, the final sales tax rates could be reduced: from 1.5% to 1% for commercial activities, from 3.5% to 3% for manufacturing, from 4% to 3.5% for food services, and from 5% to 4.5% for other sectors. Additionally, the government plans to limit alternative taxation systems, specifying that notarial, legal, and lottery activities will not be eligible for the turnover tax system.
Prime Minister Pashinyan emphasized the need for these reforms, arguing that the turnover tax system distorts the economy and creates inappropriate incentives. He indicated a strategic goal of gradually phasing out the turnover tax system to establish proper business incentives.