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GUILLERMO TOLOSA: LACK OF PROGRESS IN ARMENIA WOULD MEAN TO FALL BEHIND RATHER QUICKLY
by Arthur Yernjakyan
arminfo
Tuesday, November 15, 20:46
ArmInfo's interview with Guillermo Tolosa, IMF Res. Rep. in Armenia
Armenian government designed draft tax amendments in 20 laws, inducing
higher taxation rates in addition to restrained tax administration. It
is planned inter alia to step up taxes on various luxury goods and
raise excise tax rates. These steps aim to increase 2012 budget tax
revenues by AMD 100 billion. How does the IMF assess this portfolio
of changes?
We have a positive view of the changes, as it is critical for Armenia
to improve tax collection to be able to expand spending in critical
areas while reducing the fiscal deficit. For instance, excise taxes
in Armenia are very low by any international standard, and even very
low compared to their real value in Armenia in the past. Luxury goods
are also significantly undertaxed. We also think there are further
opportunities to improve tax legislation and eliminate loopholes
beyond the current package, and the government has acknowledged it
and committed to address over the next three years.
Armenia is planning to fully abolish presumptive tax regime on
excisable goods by 2014 and apply ad valorem system of excise
taxation. Was this an IMF conditionality measure? Which presumptive
taxes will be repealed in 2012?
Yes indeed this is the case, presumptive tax regime is being gradually
phased out until 2014 and this has been supported by the IMF.
Presumptive taxes may be useful when tax administration capacity is
very weak, or when the underlying transactions are difficult to monitor
and assess. This is no longer the case for goods and services covered
by presumptive taxes in Armenia, and the standard tax instruments
should be applied. Next January six activities will be transferred
away from the presumptive regime, including retail sales of fuel and
car parking. More than ten more are under consideration for being
phased out of the presumptive regime by April next year.
Please note that not all of these will necessary start to operate in
an ad valorem regime, and when the turnover is low enough they will
be governed by the patent fee regime.
In 2010, the government introduced the system of tax representatives
in several large companies. How much did this measure pay off in
terms of enhancing tax payments from large taxpayers?
It is a fact that collection from large taxpayers has been increasing
more than overall collection, and SRC indicates that collection
from the 25-30 specific firms in which inspectors were placed also
increased more than the average. But it is difficult for us to make
an assessment if this was indeed the outcome of effective auditing
and that the use of SRC resources was actually worth it (say compared
to a situation in which these auditors would have been able to audit
more firms instead of just one). In general we have not had a positive
view of this measure, as it may have raised corruption risks and is
too intensive for scarce SRC resources. Therefore, we were pleased
to see this policy discontinued recently.
According to SRC Chairman, Gagik Khachatryan, half of the registered
enterprises in Armenia are in still stand. If it is really the case,
don't you think that business environment in Armenia is largely
unfavorable?
We think the business environment in Armenia has experienced some
progress (as also documented by the World Bank's Doing Business
Report), but I agree that it is still generally unfavorable and there
is still a large room for improvement. We would like to see more
firms in all sectors in Armenia being created and thrive. However, it
is usually the case in any capitalist system that many of these new
firms by the very nature of their risk-taking activities eventually
die. The amount of firms that perish can be a signal of weaknesses
in the business environment but it could also be a sign of vibrant
entrepreneurship.
How does the IMF assess 2012 state budget? How realistic it is?
We have a very positive assessment of 2012 budget. It is an important
leap forward to address the chronically low tax collections of Armenia,
and will thereby help to increase spending in critical areas while
continuing to reduce the fiscal imbalances and preserve macroeconomic
stability. The budget envisages increases in tax collections not only
from improvement in tax legislation but also from renewed efforts in
tax administration to address current underpayment of taxes in the
Armenian economy. We think there are considerable opportunities in this
regard. Therefore, provided there is significant effort and political
will to take it forward, the drawn objectives should be realistic.
IS the IMF projection on 4.6% and 4% GDP growth in 2011 and 2012,
respectively, still in force? What is the current macroeconomic
situation in Armenia and what are the main challenges it poses?
Yes we expect Armenia to continue with its gradual recovery along
those lines, but with downside risks having increased considerably.
Externally, the European sovereign debt crisis will pose considerable
challenges, mainly because of the possibility of knock-on effects to
Russia. Domestically, challenge is to make a forceful step forward
towards the improvement of the business environment discussed above.
Countries around the world (and some in the region) are continuing
with reforms so lack of progress in Armenia would mean to fall behind
rather quickly.
What are the IMF forecasts and assessments on inflation in Armenia?
We think inflation will be slightly below 5 percent this year and
next year. There are no underlying reasons for higher inflation in
Armenia in light of the strong macroeconomic framework, including
an adequate fiscal consolidation path. The forces behind the recent
temporary spike in inflation have waned, as the international food
and fuel prices have stabilized or fallen and domestic agricultural
production has gone back to more normal levels this year.
The IMF mission lead by Mark Horton visited Armenia during September
7 - 20, 2011, in order to assess country's performance under EFF/ECF?
When do you expect disbursement of the next tranche and how big it is?
The program is broadly on track, and discussions to reach an agreement
for the completion of the Third Review are ongoing. We hope to be in
position for Board consideration of the Third Review in mid-December,
which could trigger a new disbursement of around USD 60 million.
From: Emil Lazarian | Ararat NewsPress
by Arthur Yernjakyan
arminfo
Tuesday, November 15, 20:46
ArmInfo's interview with Guillermo Tolosa, IMF Res. Rep. in Armenia
Armenian government designed draft tax amendments in 20 laws, inducing
higher taxation rates in addition to restrained tax administration. It
is planned inter alia to step up taxes on various luxury goods and
raise excise tax rates. These steps aim to increase 2012 budget tax
revenues by AMD 100 billion. How does the IMF assess this portfolio
of changes?
We have a positive view of the changes, as it is critical for Armenia
to improve tax collection to be able to expand spending in critical
areas while reducing the fiscal deficit. For instance, excise taxes
in Armenia are very low by any international standard, and even very
low compared to their real value in Armenia in the past. Luxury goods
are also significantly undertaxed. We also think there are further
opportunities to improve tax legislation and eliminate loopholes
beyond the current package, and the government has acknowledged it
and committed to address over the next three years.
Armenia is planning to fully abolish presumptive tax regime on
excisable goods by 2014 and apply ad valorem system of excise
taxation. Was this an IMF conditionality measure? Which presumptive
taxes will be repealed in 2012?
Yes indeed this is the case, presumptive tax regime is being gradually
phased out until 2014 and this has been supported by the IMF.
Presumptive taxes may be useful when tax administration capacity is
very weak, or when the underlying transactions are difficult to monitor
and assess. This is no longer the case for goods and services covered
by presumptive taxes in Armenia, and the standard tax instruments
should be applied. Next January six activities will be transferred
away from the presumptive regime, including retail sales of fuel and
car parking. More than ten more are under consideration for being
phased out of the presumptive regime by April next year.
Please note that not all of these will necessary start to operate in
an ad valorem regime, and when the turnover is low enough they will
be governed by the patent fee regime.
In 2010, the government introduced the system of tax representatives
in several large companies. How much did this measure pay off in
terms of enhancing tax payments from large taxpayers?
It is a fact that collection from large taxpayers has been increasing
more than overall collection, and SRC indicates that collection
from the 25-30 specific firms in which inspectors were placed also
increased more than the average. But it is difficult for us to make
an assessment if this was indeed the outcome of effective auditing
and that the use of SRC resources was actually worth it (say compared
to a situation in which these auditors would have been able to audit
more firms instead of just one). In general we have not had a positive
view of this measure, as it may have raised corruption risks and is
too intensive for scarce SRC resources. Therefore, we were pleased
to see this policy discontinued recently.
According to SRC Chairman, Gagik Khachatryan, half of the registered
enterprises in Armenia are in still stand. If it is really the case,
don't you think that business environment in Armenia is largely
unfavorable?
We think the business environment in Armenia has experienced some
progress (as also documented by the World Bank's Doing Business
Report), but I agree that it is still generally unfavorable and there
is still a large room for improvement. We would like to see more
firms in all sectors in Armenia being created and thrive. However, it
is usually the case in any capitalist system that many of these new
firms by the very nature of their risk-taking activities eventually
die. The amount of firms that perish can be a signal of weaknesses
in the business environment but it could also be a sign of vibrant
entrepreneurship.
How does the IMF assess 2012 state budget? How realistic it is?
We have a very positive assessment of 2012 budget. It is an important
leap forward to address the chronically low tax collections of Armenia,
and will thereby help to increase spending in critical areas while
continuing to reduce the fiscal imbalances and preserve macroeconomic
stability. The budget envisages increases in tax collections not only
from improvement in tax legislation but also from renewed efforts in
tax administration to address current underpayment of taxes in the
Armenian economy. We think there are considerable opportunities in this
regard. Therefore, provided there is significant effort and political
will to take it forward, the drawn objectives should be realistic.
IS the IMF projection on 4.6% and 4% GDP growth in 2011 and 2012,
respectively, still in force? What is the current macroeconomic
situation in Armenia and what are the main challenges it poses?
Yes we expect Armenia to continue with its gradual recovery along
those lines, but with downside risks having increased considerably.
Externally, the European sovereign debt crisis will pose considerable
challenges, mainly because of the possibility of knock-on effects to
Russia. Domestically, challenge is to make a forceful step forward
towards the improvement of the business environment discussed above.
Countries around the world (and some in the region) are continuing
with reforms so lack of progress in Armenia would mean to fall behind
rather quickly.
What are the IMF forecasts and assessments on inflation in Armenia?
We think inflation will be slightly below 5 percent this year and
next year. There are no underlying reasons for higher inflation in
Armenia in light of the strong macroeconomic framework, including
an adequate fiscal consolidation path. The forces behind the recent
temporary spike in inflation have waned, as the international food
and fuel prices have stabilized or fallen and domestic agricultural
production has gone back to more normal levels this year.
The IMF mission lead by Mark Horton visited Armenia during September
7 - 20, 2011, in order to assess country's performance under EFF/ECF?
When do you expect disbursement of the next tranche and how big it is?
The program is broadly on track, and discussions to reach an agreement
for the completion of the Third Review are ongoing. We hope to be in
position for Board consideration of the Third Review in mid-December,
which could trigger a new disbursement of around USD 60 million.
From: Emil Lazarian | Ararat NewsPress