This edition of “Hetq’s” round table will examine the latest changes to Armenia’s tax sector. Discussing the pros and cons are Armen Alaverdyan, Deputy to the President of the State Revenue Committee; Tigran Martirosyan, President of the “T-ACCOUNT” LLC; Artzvik Minasyan, Deputy Chairman of the National Assembly’s Standing Committee on Financial-Credit and Budgetary Affairs; and Edik Baghdasaryan, Editor in Chief of “Hetq”

E. Baghdasaryan – I would like to direct your attention to the document regarding tax policy in which there is a very good point: “The introduction of legislative and administrative measures to prevent top government officials from engaging in business.” Are there any such bills in the National Assembly? What steps will you implement to see that parliamentary deputies don’t engage in business?

A. Minasyan – Let’s start with legislation. Article 2 of the Civil Code defines the activity of commercial enterprise. It is economic activity carried out with the expectation of obtaining a certain amount of revenue through private risk taking. And Article 26 defines at least three forms of commercial activity – establish a legal entity, register as an individual entrepreneur, or a joint business contract in the case of licensees or those engaged in agriculture. In turns out that in the case of creating a legal entity one becomes a shareholder and, by extension, one engaged in commercial activity. In other words, not only have I violated the Constitution, the law, but a host of other ethical codes for government officials. If this is the logic we go by in our country today, an individual who leases something becomes someone carrying out commercial activity. That’s to say there is a serious need for legislative change. I am very glad that this policy has been incorporated in the government’s program but it mostly deals with the tax sector, whereas universal changes are required in order to make clear distinctions. There are certain international standards, for example, a person holding shares in a company isn’t considered to be engaged in commercial activity as a result if the share, in the first case, doesn’t compel such oversight where the entity in question can adopt decisions by themselves or with associates. Secondly, he doesn’t serve as a member in the executive body. And thirdly, he doesn’t unite labor, capital and entrepreneurial skills. Based on these principles, I and many of my colleagues are working to implement legislative changes in order to impose some specificity.

E. Baghdasaryan – In other words, you have to change the laws in order for those people to engage in business without difficulty.

A. Minasyan – No. We have to change the laws in order to clarify who is regarded as an entity engaged in commercial activity in this country. We have a problem today. Let’s take a look at what the tax service has done to solve it. In addition to the concept of commercial activity, it utilized the concept of economic activity in the tax legislation and decided to define certain standards so that it could manage a just tax system.

E. Baghdasaryan – Mr. Alaverdyan, when drafting this policy how did you envisage its implementation?

A. Alaverdyan - One mustn’t envisage it just by one concrete example but rather as a totality. Secondly, it is connected to that portion of the program that refers to the perfection of mechanisms for the taxation of large business. In particular, that point is directed to preventing high-ranking government officials from engaging in commercial activity. For example, the deputy minister is also an entrepreneur, engaged in importation or he owns a large concern. If he owns shares, today’s legislation doesn’t create obstacles. But if he engages in active business, if he makes decisions and issues directives and thus influences operations, this constitutes clear-cut commercial activity. The way the question is formulated is very important. Up till now we haven’t generally raised such questions and top ranking government officials have engaged or are engaged in business for all of us to see. I believe that the formulation of the question inherently assumes that we must find mechanisms and solutions to analyze and gradually introduce restrictions for high level officials, so that they cannot simultaneously engage in business and avail themselves from the “benefits” of being in government. A government official must be convinced that if he or she holds a certain post they will receive an amount of compensation that will adequately their needs, i.e. they will have no need to sponsor or engage in business. A contradictory situation has been created. On the one hand, we don’t have a sufficient level of welfare for top ranking officials that would permit us to demand corresponding action in terms of preventing them from engaging in commercial activity. Mr. Minasyan presented a good example by stating that commercial activity isn’t well defined and even if you introduced mechanical restrictions the official might not be directly be considered a business entity. He could, indirectly, through his children, spouse and relatives, still engage in business. If you solve the problems in an interconnected framework, there is a problem connected with profit and the given entity will take care of the problem by selling the profits. What I want to say is that we first must define the border between these two poles, government officials and business. This will not happen in a day or a year. One of the mechanisms would be a clarification of the legal statutes, the legislation. The functions of government employees, tax, customs and public officials must be clarified. Specific methods to ensure accountability must be drafted in order that official positions aren’t abused. Mechanisms to encourage and reward government official must also be drafted. Put another way, this envisages the implementation of a set of measures. Here, we are also talking about preventative measures. For example the creation of a separate body involved in examining the interests of top officials and other ethics related issues or a collective assigned such a function. Today, that function falls under the discretion of the head of the state government institution. In the future, such an ethics committee can gradually introduce those types of mechanisms in our society. To introduce this into the tax structure is conditioned by the acuteness of the problem in that system, in order that tax agents not engage in or back a business, since this creates unequal competition.

E. Baghdasaryan – In this country, everything works in the opposite way. For example, we publish proof and evidence regarding violations of the law but, in the end, the perpetrator, rather than being punished, is given a promotion. Let’s cite the example of the army’s history. I point out this example because violations occurred due to the joint efforts of the tax and customs services.

A. Alaverdyan – Give a specific example.

E. Baghdasaryan – I just gave you an example. The individual who forged army documents is now the chief of the Compulsory Enforcement Service.

A. Alaverdyan – I have no information about that because what interests me is the joint-stock company which, not only compensated the national budget for the losses accrued due to its violation, but also paid fees and penalties. As a result we accomplished our one month plan without any difficulty.

E. Baghdasaryan – Put another way, by doing so did you give them the opportunity of doing whatever they wanted?

A. Alaverdyan – No. We didn’t levy any amount from individuals but exacted the VAT from the organization. This was to go to the national budget; a late fee, which was quite substantial, and a penalty for the violation.

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