Armenian Tax Break Meets With Local Opposition

Monday, 24 November, 2014

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Lilit Arakelyan

A new law passed by Armenia’s parliament that will give tax exemptions to businesses based along the country’s border with Azerbaijan has been heavily criticised by people living there.

The law, which provides for the "tax exemption for entrepreneurial activity in border villages", will come into force on January 1 next year.

Under the legislation, business owners will receive tax incentives to invest in industrial and commercial activities in 47 border districts.

The government calculates that the total tax relief will amount to 2.5 billion drams, or around six million US dollars, a year.

“The law is aimed solely at businesses in these districts,” Deputy Finance Minister Vakhtang Mirumyan told parliament on October 21, explaining that these companies would not have to pay the 20 per cent value-added tax, 20 per cent turnover tax, and income tax at both the basic rate of 24.4 per cent and the higher rate of 26 per cent.

Despite the apparent benefits on offer, people living along the border have criticised the new law.

Samvel Saghoyan is local government chief in the village of Chinari, located in north-eastern Armenia close to the border with Azerbaijan.

He is opposed to the new legislation because it affects only businesses and therefore will not benefit the majority of local residents.

"If the community was made up of businessmen, or had even just a few, then they would be able to take advantage of this law,” Saghoyan told IWPR. “What sort of favourable conditions does it provide for the residents? We live here and we know what the most important problems are. Residents of border areas should have a sense that that the government is helping them. It would be better to reduce gas, electricity and water problems, and solve the problems with the roads."

Eighty per cent of arable land in Armenia’s frontier zone lies idle because of the risk of gunfire from the Azerbaijani side.

Sniper fire and occasional raids are constant features of life both on the frontier between Azerbaijan and Armenia and along the “line of control” which forms a boundary around Nagorny Karabakh. This summer saw an alarming rise in shooting incidents in these front-line areas.

In August this year, the Armenian prime minister and parliamentarians who visited villages along the border promised to do whatever was possible to address the concerns of local residents.

Opponents of the new law argue that giving tax exemptions to businesses will do nothing to help these areas.

Vachik Melkumyan is a 55-year-old farmer in the Tavush region. Two years ago he was shot in the right leg while working in the fields.

He says that people who live along the border need medical support and a range of public services rather than a tax exemption scheme.

"When I was injured by shooting from the Azerbaijani side, I bore all the costs of the medical treatment. The state hasn’t spent a dime on me,” he told IWPR. “After this incident, I stopped farming. We don’t live in the border area, we live on the border. Azerbaijanis live 500 metres away from us.”

Melkumyan urged the government to offer free healthcare and other benefits.

“Our treatment should be completely free, and public services should also be discounted,” he added. “Those are the kind of benefits needed by residents of border villages, not these tax cuts for one or two businessmen."

According to Saghoyan, previous tax breaks given to people along the border have not worked in their favour. He said that even though people in Chinari were exempt from paying tax on their land, they still cannot make a profit from their annual harvest.

"The state must somehow compensate our residents during these difficult times,” Saghoyan said. “All the heads of border villages want to meet with the [provincial] governors, parliamentarians and representatives of the government to tell them about our problems and suggestions.”

The new law has also met resistance in political circles. Nikol Pashinyan of the opposition Armenian National Congress last month tabled a bill to assist border communities, but it was rejected. He was proposing a 50 per cent government subsidy for utility charges like gas, electricity, and water prices for anyone living within three kilometres of the border with Azerbaijan.

In addition, his bill proposed additional support such as housing and healthcare for frontier residents displaced by conflict.

"These are the minimum benefits that we should provide the residents of border areas,” Pashinyan said in parliament on October 23, pointing out that such measures would cost the same as the tax break scheme.

Pashinyan said the government blocked his bill because of its own new laws, which he said were efforts inadequate.

“Ninety per cent of the government’s legislation bears no relation to the communities along the border," he said.

Despite the criticism, Mirumyan, the deputy finance minister, has defended the tax break.

"This is a mechanism to boost economic activity. It will help the economy in the border regions, and this in turn will lead to the creation of additional jobs,” he told IWPR. “This will give people opportunities to earn an income and thus provide for their needs."

The new law has gone down well in parliament, although some have highlighted structural shortcomings. In particular, the draft law does not specify the term of the tax benefits on offer.

Mikael Melkumyan of the Prosperous Armenia party also points out that businesses may not feel the benefit.

"According to official estimates, it turns out that the bill includes tax breaks of 100 drams (25 US cents) a day for those engaged in business activities in border villages,” he told IWPR. “However, the documentation needed to get this can cost more than 100 drams.”

The deputy minister conceded that the government would hold discussions with a view to amending the bill and re-submitting it to parliament.

Lilit Arakelyan is a reporter for Araratnews.am.