On 24 January, a group of non-governmental organizations addressed a letter to the Prime Minister Nikol Pashinyan with a statement, presenting the negative consequences of the draft amendments to the RA Tax Code submitted to the public discussion yesterday.

This document provides for limiting the possibility for the persons providing legal and accounting services, including the advocates and consulting firms, to be considered as persons that pay turnover tax.

Mr. Tigran Gasparyan, President of the SME Cooperation Association said in the interview with Iravaban net, that the cost of accounting services will increase by at least 20 percent in case of adoption of such draft.

“The whole field of accounting and, legal advice services will pass to the shadow field. Steps taken to decrease the shadow will promote strengthening of the shadow. And then the SRC will not have instruments to fight against that shadow,” Tigran Gasparyan said.

It should be noted that the letter addressed to the Prime Minister also states that the inclusion of a number of public organizations and institutions, accounting and legal services companies, including advocates, consulting firms, will be included in the agenda of the government session before 2019. On January 30, 2012, from 15:00 to 17:00, an open public discussion on “Nairi” hall of “Ani” hotel (Yerevan, Sayat-Nova 19) will be held on January 30, 2010 , with a more detailed and objective presentation of the negative legislative initiative consequences as well as listening to their comments.

Anyone can join the initiative. 

The arguments presented in the letter addressed to the Prime Minister, which substantiate the negative consequences of such a move.

1. The shadow continues to have a significant impact the area of ​​accounting and legal services, as well as in the other professional services sector, and the RA State Revenue Committee does not possess and cannot have effective tools and mechanisms for struggle against it. Instead of focusing on the activities aimed at reducing the existing shadow, such an initiative will undoubtedly deepen the shadow, and the state will definitely lose tax revenues.
2. Even if we theoretically assume that accounting and legal service providers will act in the legal field (which, in our opinion, is very difficult to justify), rather than in the shade, this initiative will raise the cost of services provided to small businesses and will increase the SME expenditures, because the businesses currently working on the basis of turnover tax provide legal and accounting services mainly to the small businesses which operate on the basis of turnover tax or conduct family business entrepreneurship, as well as to the individuals. In contrast, major accounting and legal services providers companies provide services to major companies which work in the VAT tax field, and the latter demand the service providers to work in the VAT tax field, so that will have the opportunity for set off of Consequently, the above-mentioned provision cannot be a tool for providing equal field coverage for all service providers.
3. From the point of view of developing the field of professional services, this is an obvious retrospective step, since the adoption of the Tax Code, from 1 January, 2018, the companies providing accounting services were provided with the opportunity to work on the basis of turnover tax as well (before the adoption of the Code only the individual entrepreneurs were provided with such opportunity, which led to operating in shadow or operating as an individual entrepreneur). From the aspect of formalization the sector has recorded a positive shift.
4. Business entities with a small turnover in the professional field will be excluded from the market, giving way to VAT payers working in the field of general taxation, since they will not have a relative advantage in terms of price. Whereas the major ones will appear in a more favorable conditions. We hope the Armenian government does not intend to implement such a policy.
5. It is unclear, in general, the idea of ​​bringing the sphere of professional services out of the field of turnover tax, in case when the sector of non-professional services will have further opportunity to operate on the basis of turnover tax. Only the circumstance that the providers of professional services have sufficient capacity to keep records of value added tax independently, it is still insufficient to distinguish this sector from the aspect of taxation, because the difference in tax burden between general taxation and special taxation systems is significant. With the same logic, professional service providers can also carry out excise tax calculations individually. However, in such case, the negative outcomes of the planned legislative action will far exceed the benefits that the state will have.