The Government of the Republic of Armenia

Dear colleagues, during the previous session I declared that we were looking into the effectiveness of tax authority-conducted checkups in 2008-2009 as we continued receiving numerous complaints stating that the incidence of checkups was still high in small and medium-size enterprises. During the gathering of the active in Alaverdi and at the meeting held with the union of entrepreneurs we were asked once again whether the government was intent on honoring the commitments assumed, whether reforms would be boosted or whether we would keep by the principles proclaimed. I promised them that our activity would be open and transparent. A reference paper has been drafted by the adviser to the prime minister which we shall make public for today’s discussion.

The statistics we have arouse a lot of concern: the overall number of tax inspections grew by 82% in 2009. In the meantime, target receipts decreased by 25%. You understand that our strategy was aimed at taking to minimum the contacts between taxpayers and tax authorities. Inspections should only be restricted to risky taxpayers. But there are deviations in the actual indices: the total number of checkups has increased by 82%: nearly 30% in major taxpayers, some 70% in the entities with less than AMD 58 million annual turnover, and about 250% in all the other taxpayers. At the same time, the amount of extra revenue levied as a result of checkups carried out in three different groups of taxpayers has decreased by 2 to 3 times.

This means that the targeted extra revenue-actual receipts ratio is nearly 4 times down in major taxpayers than in the other groups of taxpayers. Note that this gap increased 3.8 times in 2008 and 4.6 times in 2009. Hence, it turns out that we have so far been sparing major taxpayers at the expense of smaller ones. At the same time, the target amount-actual receipt ratio in 325 major taxpayers is at least 50 times as less as in other taxpayers. While this figure has remained unchanged for ordinary taxpayers, it went down by almost 40% for major taxpayers 2009 as compared to the same period of 2008.

Indeed, this information still needs to be analyzed, but the overall situation testifies that there is a serious problem of efficiency and that the chief vector of criticism should be pointed toward the Ministry of Finance since the Ministry of Finance is the one responsible for fiscal policy. I feel that the role of the Ministry of Finance must be strengthened as we are far behind the anticipated schedule of reforms in this sphere. We are prepared to extend the necessary support because the macroeconomic indicators we have are insufficient for generating a business-friendly environment in the country. Improvement in the business environment must be objective because the recorded rise in the GDP was mainly due to the government’s well-advised macroeconomic policy - expansionary policy. Large amounts were injected into the economy, and this was sure to lead to economic growth, but what we should do now is to upgrade the microhabitat which cannot be improved by means of increased checkups. We thereby give rise to discontent with tens of thousands of enterprises - discontent with regard to the State since we fail to keep our promises.

The second problem I wish to speak about stems from our macroeconomic decisions, namely the procurements made from a single person for public needs. Certain progress has been made in this area as we were able to change the existing mechanisms. In particular, AMD 36bn worth of single-supplier procurement was made in 2009, of which about AMD 16 billion - in the first quarter. As of the first quarter of 2010, the amount of single-person procurements was only some 1.3 billion drams.

Thus, the volume of single-person procurements proved 13 times or 92 % down in the first quarter of 2009 as compared to the same period of 2008. This is the achievement of the Ministry of Finance which was consistent in this matter. We owe the Ministry of Finance for the above-stated shift in the procedure of public procurements. Unfortunately, this is not the case with the checkups. The Ministry of Economy, too, has to do with the current state of affairs in this sphere because the reform of inspections and the coordination of checkups are among your primary responsibilities. Yet, it is unclear to me why entrepreneurs in Alaverdi kept complaining about reiterated inspections and checkups even in small entities. I mean your agency, Mr. Yeritsyan as checkups were said to have been conducted throughout 2009 in breach of the Prime Minister’s directive. Very often inspections like this are made under cover of survey while small enterprises do not really care about how you would call these interventions. Dear colleagues, we should be very careful in this matter. Better conditions have to be created for small and medium size businesses because otherwise we can give rise to mistrust and dissatisfaction with the government and the State. Larger enterprises are strong enough to protect themselves, while small and medium-size entities cannot do so. This issue will be kept in focus from now on, and any signal coming from small and medium-size businesses will be given due consideration.