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Businessmen Lament: `They want us to practice European values while
continuing Asian graft'
Levon Hayrapetyan
HETQ
13:49, March 3, 2012
After meeting with a dozen or so medium and large entrepreneurs, one
thing was evidently apparent - their fear. None wanted their names to
be used for this article.
They were fearful for the continued operation of their businesses and
their long-term prospects of remaining in Armenia.
Many were thinking of moving their businesses out of Armenia.
`The government wants us to play by European rules while continuing
the Asian practice paying bribes and graft,' lamented one businessman.
Another one said that the vast majority of informed businessmen in
Armenia wanted to operate according to the law, to pay their taxes,
and devote their energies into growing their businesses.
`Nobody wants to line the pockets of government officials who do
nothing to assist us,' he said.
They all pointed to the practice of setting arbitrary `control prices'
by customs officials in Armenia as the crux of the matter. `If these
prices are kept in place, if they do not allow us to breathe, then the
only option remaining is to close up shop,' said one entrepreneur.
`This issue must be discussed in the press so that those in government
will also review the matter.'
The mechanism of customs formulations at Ararat Regional Customs
Authorized representatives of both legal entities and individuals must
declare goods to the customs house after receiving documents for the
imported goods from the customs warehouse.
Each organization is parceled between brokerage offices, whose
directors happen to be the heads of various customs agency units
operating in the `shadows'. Thus, it is absurd to say that companies
can get their goods cleared through customs simply by submitting a
standard customs declaration. Only one or two companies are allowed
such `self declarations', and even then, permission comes from the
very top of the State Customs Committee. We are now looking into these
brokerage offices and will shortly publish the actual names of their
owners.
Infractions in the Valuation Division
After the initial declaration, the customs declaration and other
relevant paperwork is presented to the appraisal division where the
chief and his deputy apply the so-called `control prices' to the
imported goods. And this takes place regardless of whether the
shipment was processed by Article 87 (1st method) or Article 91 (4th
method) of the Customs Code.
What really irritates businessmen in Armenia is that these `control
prices' do not seem to have any connection at all to international
market prices.
There is an unwritten law at work in the valuation division related to
the halving of the VAT to be paid to the government. In essence, of
the difference of the VAT between the value of goods imported by legal
or physical entities and the value mandated by customs officials is
divvied up according to a 40-60% or 50-50% formula. For example:
Version1 (Customs Code Article 87, Point 1): If the goods invoice
shows a price of 1,000 dram for 1 kilo, then the control price set by
customs is 1,500 dram. Customs officials then tell you to pay 200 dram
rather than the planned 300 dram in VAT. At the end of the month, the
importer pays 8 dram in bribes to a top level customs official for the
100 dram saved in VAT payments. This is possible because each official
at customs has control of their own little fiefdom to operate as they
please.
Version 2 (Customs Code Article 91, Point 4): Here the amount of bribe
to customs decreases, which is why the customs officials agree to this
method only grudgingly. For example, if as in Version 1 above, the
invoice value of 1 kilo of an imported good is 1,000 dram and the
control price 1,500 dram, the goods are processed at 1,200 dram. Thus,
the VAT to be paid to the government becomes 240 dram and a bribe to
be paid at the end of each month is 4.8 dram (40-60% relationship) for
each 60 dram saved on per kilo.
An unsuspecting businessman accepts the `helping hand' of customs the
first time (for helping to pay less taxes), without realizing that he
is being moved by the customs official to `shadow' commercial
activity. The bribes cannot be written off and the company's financial
books cannot account for the loss. The businessman, in order to
make-up the amount of the paid bribes (which amount to a considerable
sum at the end of the month), must either sell a quantity of goods at
a price violation or at a low price.
After completing the shipment paperwork, the businessman falls into
the clutches of employees of the Armenian State Revenue Committee
(SRC), Pre-release Control Department, to overcome the final obstacle
of the shipment's examination and release.
In addition to the fact that customs examiners can arbitrarily force
the emptying of the shipment in the customs terminal, saying that it
has to be examined and adding more expenses for the businessman, here
too the release tariffs are employed as bribes in the following way:
20 ft. container AMD 10-15,000
40 ft. container AMD 15-20,000
Cargo trucks AMD 35-40,000
Train car AMD 25-35,000
In the case of exports, examining officials demand $100 - $200 without
even examining the cargo, before they stamp the cargo and allow it to
pass.
Even after paying the bribe, the businessmen wait from 30 to 60
minutes for the OK from the Chief of the Pre-Control Department to
receive the cargo. After this, employees at the customs warehouse
Contraband Division must be paid AMD 5,000-10,000 to sign the cargo
pass permit.
These tariffs are used for both import and export of legal cargo, when
the shipment checks out in every detail to the accompanying cargo
paperwork.
(To be continued)
continuing Asian graft'
Levon Hayrapetyan
HETQ
13:49, March 3, 2012
After meeting with a dozen or so medium and large entrepreneurs, one
thing was evidently apparent - their fear. None wanted their names to
be used for this article.
They were fearful for the continued operation of their businesses and
their long-term prospects of remaining in Armenia.
Many were thinking of moving their businesses out of Armenia.
`The government wants us to play by European rules while continuing
the Asian practice paying bribes and graft,' lamented one businessman.
Another one said that the vast majority of informed businessmen in
Armenia wanted to operate according to the law, to pay their taxes,
and devote their energies into growing their businesses.
`Nobody wants to line the pockets of government officials who do
nothing to assist us,' he said.
They all pointed to the practice of setting arbitrary `control prices'
by customs officials in Armenia as the crux of the matter. `If these
prices are kept in place, if they do not allow us to breathe, then the
only option remaining is to close up shop,' said one entrepreneur.
`This issue must be discussed in the press so that those in government
will also review the matter.'
The mechanism of customs formulations at Ararat Regional Customs
Authorized representatives of both legal entities and individuals must
declare goods to the customs house after receiving documents for the
imported goods from the customs warehouse.
Each organization is parceled between brokerage offices, whose
directors happen to be the heads of various customs agency units
operating in the `shadows'. Thus, it is absurd to say that companies
can get their goods cleared through customs simply by submitting a
standard customs declaration. Only one or two companies are allowed
such `self declarations', and even then, permission comes from the
very top of the State Customs Committee. We are now looking into these
brokerage offices and will shortly publish the actual names of their
owners.
Infractions in the Valuation Division
After the initial declaration, the customs declaration and other
relevant paperwork is presented to the appraisal division where the
chief and his deputy apply the so-called `control prices' to the
imported goods. And this takes place regardless of whether the
shipment was processed by Article 87 (1st method) or Article 91 (4th
method) of the Customs Code.
What really irritates businessmen in Armenia is that these `control
prices' do not seem to have any connection at all to international
market prices.
There is an unwritten law at work in the valuation division related to
the halving of the VAT to be paid to the government. In essence, of
the difference of the VAT between the value of goods imported by legal
or physical entities and the value mandated by customs officials is
divvied up according to a 40-60% or 50-50% formula. For example:
Version1 (Customs Code Article 87, Point 1): If the goods invoice
shows a price of 1,000 dram for 1 kilo, then the control price set by
customs is 1,500 dram. Customs officials then tell you to pay 200 dram
rather than the planned 300 dram in VAT. At the end of the month, the
importer pays 8 dram in bribes to a top level customs official for the
100 dram saved in VAT payments. This is possible because each official
at customs has control of their own little fiefdom to operate as they
please.
Version 2 (Customs Code Article 91, Point 4): Here the amount of bribe
to customs decreases, which is why the customs officials agree to this
method only grudgingly. For example, if as in Version 1 above, the
invoice value of 1 kilo of an imported good is 1,000 dram and the
control price 1,500 dram, the goods are processed at 1,200 dram. Thus,
the VAT to be paid to the government becomes 240 dram and a bribe to
be paid at the end of each month is 4.8 dram (40-60% relationship) for
each 60 dram saved on per kilo.
An unsuspecting businessman accepts the `helping hand' of customs the
first time (for helping to pay less taxes), without realizing that he
is being moved by the customs official to `shadow' commercial
activity. The bribes cannot be written off and the company's financial
books cannot account for the loss. The businessman, in order to
make-up the amount of the paid bribes (which amount to a considerable
sum at the end of the month), must either sell a quantity of goods at
a price violation or at a low price.
After completing the shipment paperwork, the businessman falls into
the clutches of employees of the Armenian State Revenue Committee
(SRC), Pre-release Control Department, to overcome the final obstacle
of the shipment's examination and release.
In addition to the fact that customs examiners can arbitrarily force
the emptying of the shipment in the customs terminal, saying that it
has to be examined and adding more expenses for the businessman, here
too the release tariffs are employed as bribes in the following way:
20 ft. container AMD 10-15,000
40 ft. container AMD 15-20,000
Cargo trucks AMD 35-40,000
Train car AMD 25-35,000
In the case of exports, examining officials demand $100 - $200 without
even examining the cargo, before they stamp the cargo and allow it to
pass.
Even after paying the bribe, the businessmen wait from 30 to 60
minutes for the OK from the Chief of the Pre-Control Department to
receive the cargo. After this, employees at the customs warehouse
Contraband Division must be paid AMD 5,000-10,000 to sign the cargo
pass permit.
These tariffs are used for both import and export of legal cargo, when
the shipment checks out in every detail to the accompanying cargo
paperwork.
(To be continued)