The Armenian government’s proposal to institute a flat income tax was the main topic of discussion today in parliament.

Members of parliament peppered Armenia Minister of Finance Arman Poghosyan with questions regarding the flat tax proposal, asking whether such an approach could be considered socially progressive and what the consequences would be in terms of the state budget.

Im Kayl (My Step) MP Yeghishe Soghomonyan said that by introducing a flat income tax and cutting the tax on profits, the state budget would be deprived of much needed revenue.

“Wouldn’t it be correct not to deprive ourselves of these resources? Instead, shouldn’t we increase the tax rate in those sectors where a rise in wages and pensions is expected?” Soghomonyan asked.

In response, Minister Poghosyan said that in the event of a flat income tax the annual loss to the national budget would amount to some AMD 30 billion (US$ 62.5 million).

Poghosyan said that the government could deal with the loss and that the bill is designed to guarantee stabile economic growth rates, to increase economic competitiveness, to spur the export sector, and to tax the manufacturing labor force a bit less.

Babken Tunyan, who chairs the Standing Committee of Economic Affairs, proposed that the hearings on the flat tax proposal be divided into two parts – economic and moral.

“I don’t agree with those claiming that such a system will lead to the country’s ruination. However, we have promised to convene a discussion on the matter, in the period between the first and second reading of the bill, to be attended by 10-15 specialists,” said Tunyan, a member of the ruling My Step parliamentary faction.

Tunyan argued that the current three-tier income tax structure of 23%,28% and 36% is actually regressive, even though it’s labelled as progressive.

“Some are trying to say that the government, by introducing this bill, wants to help the rich at the expense of the poor. But who do we consider rich? Do we consider those receiving high salaries as rich? What about those who don’t work but get income from property and dividends? We must delineate who are rich and how much should they be taxed,” Tunyan said, adding that the government is planning to resolve the matter via the tax on property.

Tunyan said that nobody disagrees with the concept of social justice and that tax rates should be progressive.

“We will tax revenues as well as other assets. While it may be possible to conceal income, you can’t conceal property,” Tunyan said.

Prosperous Armenia MP Arman Abovyan spoke against the flat tax and noted countries where it has failed.

“We are discussing social justice. It will be very difficult to explain to someone making 55,000 or 100,000 drams a month why they are being taxed at the same rate as someone making 2 million drams,” Abovyan said.

The parliament will continue to hold hearings on the government’s tax bill.