Tigran Martirosyan, Director of “The Account” accounting company, observes that, “In our country the President or Prime Minister must state that reforms are being started in order that officials can later claim that ‘henceforth work will be done differently’ and that we are getting done to work.”

Cash registers will be placed in all markets

During his press conference on August 8th, Kadjavan Nuridjanyan, Deputy Chief of the Tax Service declared that cash register machines (CRM’s) must be located in all markets and retail/service outlets as of September 1st. The Tax Service uses these machines to check the amount of business done at each point of sale.

When reporters asked if those engaged in the sex trade would be using the CRM’s and if portable toilets soon to be put into operation throughout Yerevan would also use the machines, the tax service official declared that there would be no exceptions. “If we can identify the business organizers of the sex trade we will demand that they use the registers as well.”

One must register in order to conduct business with the CRM’s. It is necessary that a number of traders band together to form a legal corporation or otherwise register as a sole proprietor. Tax Service authorities give assurances that the registration process will be simple. Aharon Chilingaryan, First Deputy Chief of the STS, during a governmental session, declared that, “We will not be requiring documentation; just one photo and a passport copy, an application form to be given at the State Registry, and a 3,000 dram state fee.”

Mr. Chilingaryan stated, “There are some 5,000 businesses operating in the eight largest market spaces. In one of these markets, where some 1,150 individuals are conducting business, only 50 had been registered. It doesn’t make sense to close a blind eye to such a degree of unreported trade.”

In cases where businesses continue to operate without state registration the owners will face administrative and criminal sanctions.

Back in April of 2007, a day after the government passed legislation to have CRM’s located in the markets, employees at such establishments gathered in front of the Government Building in Yerevan to protest the decision. Mr. Nuridjanyan states, “Times are changing. Those engaged in business have the resources to be able to operate in the legal tax sector. It’s not that people don’t want to pay taxes but rather that equitable conditions are created for all. The issue we face is to create that set of equitable conditions.”

According to STS calculations, an extra 15-20 million drams will be collected yearly with the addition of the CRM’s.

4,800 individuals rent business space from the “Vosku Shuka” company. Armen Baghdasaryan, Director of “Vosku Shuka”, agrees that CRM’s should be placed into operation but doesn’t rule out the possibility that such a move will affect prices. “Of course prices will rise but the change will be minute” he says.

CRM’s cost between 40,000 - 70,000 drams a piece. In order to obtain the machines the company might possibly offer credit to those businesses it leases space to.

CRM’s operating in such market spaces must be linked together through a computer network. Daily accounts must be delivered to the tax authorities and VAT taxes must be paid on a daily basis as well. (It has been proposed to increase monthly VAT figures from the present 60 million drams to 100 million as of January 2009)

Supermarket technology more advanced than the Tax Service

Inspections of Yerevan supermarkets preceded the decision to place CRM’s in markets and commercial outlets. Of the twenty-three that were audited, employees of the STS closed the following eight stores for a period of 5-10 days; Arbat, Parma, Saleks Girg, Zovk, Bakalya, Father and Son-Aramyan’s, Davit 60 and Pountch.

In these stores the instances of not providing the customer with a CRM receipt doubled and even tripled within the course of a year. Perishable items were removed from these locations after which STS employees locked down the stores.

Mr. Nuridjanyan stated that, “Before shutting down the stores we conducted 3-10 day surveys at each. If our average surveys showed, for example, an average of 2 million drams in turnover, we then estimated that on a monthly basis the store’s average turnover was in the vicinity of 50-60 million drams. However, the figures the stores presented to us showed amounts 3-4 times less turnover than our estimates.”

According to the law passed regarding the implementation of CRM’s a fine of 75,000 drams is envisaged for the first violation. Those violating the law a second time would be slapped with a fine of 150,000 drams and their place of business closed for 5 days. A third violation would result in a 300,000 dram fine and a 10 day business closure.

Vahan Kerobyan, Executive Director of the Star Corporation agrees with the implementation of measures which can bring the economy out of the illegal realm but notes that the STS is trying to resolve the issues on a one-way track.
“We are ready to participate in all reform and offer our expertise in the mater in order to come up with effective solutions but we face objective problems that the STS doesn’t wish to take into account” states Mr. Kerobyan.

Of the some 100 models of CRM’s permitted by the STS not one is suitable for use by supermarkets. All were intended for us by small businesses.

“If we were to follow the directives of the tax authorities we would have to get out of the supermarket business, states Mr. Kerobyan. We have spent millions on getting the latest technologies for our stores but at the same time we are obligated to use the out-dated machines forced on us by the STS.”

Star Company management has petitioned the STS on several occasions to permit the implementation of such technologies, which will also facilitate the work of the tax authorities, but have received no response to date.

Mr. Kerobyan explains, “Now we have combined several processes and are utilizing the technologies we possess in order to supply the customer with a “fiscal” receipt and thus satisfy the requirements of the STS.”

The STS also requires that the receipt be in Armenian but the CRM’s that print such Armenian receipts are quite outdated for supermarket use. The Star Company has already placed an order for a computerized system that will be capable of printing out an Armenian receipt. A foreign concern is working on this order and some additional time is needed for its completion.

Cases from the annals of Tax Service reforms

A document outlining the administrative strategy for the Tax Service for 2008-2011 has been completed that details the 29 projects, with timetables, which are envisaged to fulfill the seven essential targets included in the document. A list containing some 109 reform measures has been made public as well.

“I can’t say that I see any meaningful change. It seems that the government has understood the importance of reforming the tax system but I still don’t see any serious changes”, states Tigran Martirosyan, Director of “The Account” company.

The tax authorities continue to exert pressure on tax payers according to the old methods. One case in point is that about two weeks ago the Tax Department telephoned a client of “The Account” firm and demanded a tax deposit even though no business had been conducted and thus, no actual taxes accrued. The taxpayer answered that the deadline for payment was in October and that he wasn’t able to make payment at the moment. The Tax Service Supervisor retorted by utilizing the accepted and customary parlance - If that’s the case we’ll initiate an audit of your operation.

To avoid such arbitrary acts the STS has formulated a computer program to calculate such risk indices. Ruling out the human factor, it will select those taxpayers to be audited. The program will work on the basis of the actual figures presented by the taxpayer and will select those taxpayers who are deemed to be risks according to the parameters included in the program. The program is now in the testing phase.

One of the administrative reforms at the STS is the creation of the “hot-line”.

In a written response to our query, the STS noted that, “Questions received by way of the “hot-line” will be transferred to the appropriate divisions or responsible departments the very same day. A three day period has been specified for answers to be supplied. In practice, this entire process doesn’t take more than a week but if a certain query necessitates further study by the STS (research or inspection), naturally the noted deadline will be lengthened.”

In actual practice the picture is somewhat different. This is the impression that Mr. Tigran Martirosyan came away with after availing himself of the “hot line” for the first time.

“I called up the ‘hot line” with a question over a month ago and still haven’t received an answer. The question concerned one of our client companies about to undergo an investigation. The protocol for such procedures is defined by the government. All I wanted to know was what the accepted protocol was but no answer has been forthcoming.”

Specialists working in the accounting field note that the lack of information is the major stumbling block they encounter in their practice. “I have colleagues who prefer to stand in line at the tax department and personally submit accounting reports. They state that while waiting in line people discuss the various tax codes and changes to the law. It’s just a way to find out what’s really going on. However, I don’t think it’s a rather civilized way to get things done”, says Tigran Martirosyan.

In order to overcome the present lack of information the STS has promised to open five taxpayer service centers in Armenia by the end of 2009. The centers will be manned with specialists able to offer expert advice to those seeking clarification to a variety of tax issues.