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Edik Baghdasaryan

The Godfathers of the Shadow Economy

Every politician, known and less-well known, and official in high or low position talks about corruption and the shadowy nature of the economy. Everyone claims to be waging a war against these problems. The most common ways of doing so are speaking at seminars, joining international organizations and participating in their events, and, of course, peppering pre-election speeches with rhetoric on these fronts.

Where does corruption manifest itself, and where is this "invisible" shadow? Where is the hideout of these businessmen-a hideout we cannot manage to locate although the entire nation is supposedly engaged in the search? Who are the godfathers of the shadow economy in Armenia?

A sizable majority of them can be found on the tax department's list of the top 300 taxpayers in the country. In reality, this is a list of the officials involved in the shadow economy and corruption.

Talking to reporters, head of the tax department Felix Tsolakyan referred to certain businessmen as being good at "cooking the books", but that is not a very accurate assessment. Not many people on this list even bother to falsify their accounting. There is no need-they are protected, and their position on the list has long been secure (See also: Shadow economy godfathers get into parliament).

Hetq has begun to uncover the real picture of big business in Armenia.

MP Samvel Alexanyan's Flitfood

Member of Parliament Samvel Alexanyan is better known to the public by the nickname Lfik Samo. Alexanyan occupies the fifth spot on the list of top 300 taxpayers.

His Fleetfood Company dominates the sugar market, importing 97% of Armenia's sugar and covering 99.4% of the internal market. The company also enjoys a monopoly in the markets for sausages and butter.

The businessman-turned-member-of-parliament paid around 7 billion Armenian drams in taxes from January 2004 to January 2005. Six billion of that amount was through indirect taxes. Another 6 billion 334 million drams was paid to customs departments, with only 749 million drams paid to tax structures. To clarify, that includes mainly value added tax, excise taxes, and so on-those taxes that the consumer pays upon buying those products. The companies pay those taxes during import and then regain that amount from the consumers. Naturally, they also make a certain amount in profit from the sale of those goods to customers.

"Thus, business doesn't give the state anything. Ninety to ninety-six per cent of their taxes are indirect, and are paid by the average citizen. The businessmen have nothing to do with those taxes, " said economist Edward Aghajanov "The taxes that a businessman pays aren't paid by him in reality, they're paid by us. He adds the excise tax to the cost of the cigarettes, and sets a price that includes some profit as well. Otherwise, the figures seem to suggest that they do all that work without making any profit or paying their employees anything." Samvel Alexanyan paid the government 20 million drams in direct taxes over the period of one year - a mere 0.27% of the total taxes paid. That is to say, Flitfood paid the state 1 million 600 thousand drams (roughly US$ 3,500) each month in direct taxes - profit tax and income tax combined. That would seem to suggest that the company that provides all of Armenia with sugar made next to no profit.

"I would agree that they were using loopholes to avoid paying taxes, except for the fact that in January 2004 a new law came into effect in Armenia whereby if a company is operating at a loss or if they are making a profit of, say, 5%, they would have to pay the equivalent of 1% of their worth to the state in profit tax. That means that Alexanyan's company has not paid that 1% either, or the figures would be different. These figures suggest that Alexanyan is not paying his employees any money. Or that he's paying them less than 20,000 drams, which is why it doesn't appear in the income tax section. This list also reflects the discriminatory attitude favoring certain businessmen, that is to say, certain oligarchs," Aghajanov explained.

If he were to pay 1% of his company's worth to the state in taxes, Alexanyan would have to turn in an amount of approximately 70 million drams (1% of 7 billion drams) to the state budget. Tax department officials could not miss this discrepancy, because they are usually quick to notice such slips. Of course, tax agencies run checks from time to time and impose fines. But it seems that this has had no effect, otherwise the taxpayer's list would look different. A middle-level official at the tax department assured us that Samvel Alexanyan was much better at paying taxes than some of the other businessmen on that list. "His paperwork is untidy, that's all," the official said. There may be some truth in these words, especially because Alexanyan bears another nickname that is quite well known - Pnti (untidy) Samo.

We were unable to determine how many people were employed by Samvel Alexanyan's Flitfood. Only one of his enterprises was listed in the Spyur directory, and upon dialing the sole number given, we were told that the company did not know how to find Samvel Alexanyan. The MP is rarely seen in Parliament. The fall session of Parliament in 2005 saw 202 votes called and, according to their statute, failure to attend at least 101 is considered inexcusable. Although Alexanyan was almost never present during that session, his number of absences does not exceed 101. Our information suggests that he was only present once. But someone else seems to have been pushing the button in his stead.