The year 2018 was groundbreaking for not only the history of Armenia but also world history and the political situation soon to become the beginning of a number of changes. The Velvet revolution of Armenia started a new chapter in the politics of the country, affected every single sector, and mainly brought dramatic changes in the business sector. The revolution was an unprecedented event for the whole world, increasing the approval rating of Armenia, thus giving new opportunities for investments and further economic growth.
The whole country was in deep euphoria the first months after the revolution, filled with hopes and dreams and not quite realizing the radical changes it would bring. The new government was to be separated from the business, thus giving the sector a chance to free up funds and direct economic growth, rather than spending on organizing lobbying. The country and business sector were on hold, trying to test the waters of the newly confirmed situation. The first months could predict nothing and give no statistics, yet, the observed activity in the business sector of small and medium enterprises, rise of the number of startups, and the immigration growth promised better days.
Today, two years after the Velvet Revolution, there are exact numbers, statistics, and the real situation of the business sector to be discussed and concluded, whether the new government succeeded or Armenia is now on the verge of collapse. The state of euphoria is long gone; the small and medium enterprises are ready to talk about the present situation in the country, the changes after the revolution, all the pitfalls, and the opportunities of the new political situation.
Arara Tour, Co-founder Boris Sahakyan
Arara, a large incoming tour agency in Armenia, had a very long way to get to the point of becoming a well-known agency in the Caucasus. Back in 2013, Arara was only a project with big ambitions, and only through the contribution and devotion of the team, the small company managed to expand its travel services in the South Caucasus and Central Asia by offering tours to 8 countries. The whole team of Arara was active participants of the Revolution, waiting for changes and greeting the new government. The atmosphere of law promised to bring exceptionally positive changes.
Co-founder of Arara Tour, Boris Sahakyan, wished to share his experience of post-revolutionary events and changes in the country that directly affected the business.
“The global pandemic changed the course of history, mainly affecting the segment of the tourist market and paralyzing Arara Tour as well. The hard decision to reduce costs and optimize the company was made on March 26. By that time, the company had already a number of booked tours the total sum of which reached about 4 million dollars. The pandemic forced us to have all the tours either canceled or rescheduled. The decision to suspend the activity was made not only because of the forced situation to “take a pause” but also to voluntarily renounce state aid to small and medium enterprises to overcome the pandemic and crisis.
After the optimization, Arara Tour paid all the taxes by April 15 and had no obligations. On May 11, when the country was starting to rehabilitate after months of quarantine (but the tourism still had no chances for recovery), the Tax Inspectorate took a visit to Arara Tour. The representatives of the tax inspectorate assured that was another planned study of the field and required a list of documents. In fact, the required documents already noted that this was not a routine check-up. To understand the volume of the documents, we were to provide all contracts, foreign accounts, payments, and bank statements for the period of 2018-2019. The decision was to hire a tax auditor and financier-representative in Arara who would first understand all the risks we could have and accordingly negotiate with representatives of the law. The chaotic and endless request for all kinds of documents already suggested that the check was carried out solely to identify even small issues. The last straw was the request for all passport data of tourists for 2018-2019, justifying the request by law about the state privileges to the incoming tourists that exempt the sector from VAT if the tourists are from abroad. Requesting this type of documentation was absurd; our turnovers are carried out exclusively by bank transfers, so we offered to check the bank transfers, and again they demanded passport data. It was already clear that they intended not to find out if there were fraud and tax evasion but to either shut down the company or fine a large sum. It was immense work, but we provided all the required documents. After 15 days of inspections, we received a letter from the State Revenue Committee about a case being prepared against us according to part one of Article 205.1 of the Criminal Code of RA that presupposes deliberate tax evasion to a large extent. The charge was filed for including expenses in the profit tax that we did not actually do (according to their “detailed inspection”). We had those documents as well, provided them immediately, and the case was suspended.
This short story took more than three months, three months of stress and unplanned expenses for a company (about 2 million AMD) that had no profit at all and was still functioning only by internal funding. To this day, Arara is not considered audited (from the tax point of view), meaning they can easily repeat this scenario at any time. After such an unpleasant incident, to put it mildly, we have decided to move the headquarters to Georgia because the tax system is more favorable. Of course, we could make those changes long before these events and long before the revolution, but it was fundamental for us to stay and function in Armenia. Unfortunately, our hopes were badly failed, and as a result, Armenia lost a taxpayer”.
How do you feel about the Revolution and the new regime of law?
“We came to a conclusion that for businesses in Armenia, it was more comfortable to function in the corrupted regime of Serzh Sargsyan where you could solve any issue rather than in the country with unforgivable gaps in the law, were any man of law can play with the future and reputation of the company. Those words are the last thing I would like to think about new Armenia, and, even going through such stressful times, I am in favor of changes in the country, but, unfortunately, for the next five years, we still cannot be sure of laws to function for the business sector and not against it”․
Digital Caramel, CEO Arsen Sultanyan
One name in the digital world that immediately catches attention is the Digital Caramel marketing company. It has started providing digital services to Russia and CIS countries and is already planning to enter Western and Asian markets. Arsen Sultanyan, the CEO of Digital Caramel, has more than ten years of experience in business and perfectly feels the moment for changes. At this time, too, the decision to switch to the digital world was a success. Having started the business before the Revolution (2017) and still functioning, Arsen Sultanyan has much to share about the changes in the business sector and his personal experience.
“For me, there are two main fields, significant for the business sector: those are the environment for investment and tax changes. My experience is related to the changes in the tax field. Before the revolution, we experienced one persistently annoying thing. There were regular phone calls from tax authorities politely asking to make tax transfers one day earlier․ Besides the phonecalls, we often experienced invitations for friendly talks: nothing serious, but both calls and meetings created unwanted tension. After the revolution, the phonecalls completely stopped, and this was the first significant change in the post-revolutionary country.
The second significant fact is again related to changes in the tax field, at this time, to the changes in VAT collection. Before the revolution, the situation somehow strained businesses because it was very frustrating and complicated to get VAT prepayments from the state. Today, the process is so simplified that business owners know for sure that if you have a VAT down payment now, you can easily offset other types of taxes. Today you are absolutely sure that if there is formed VAT, in a month the business will have a payback․
The next positive change that is obvious now is more political but, again, it is related to the business sector and the whole environment of the field. Before the revolution, if, anyhow, you made public criticism of a problem of state scale or anything related to the current government, there was always a fear that such a careless act would turn your business into an immediate subject of tax terror. Fortunately, I had never had such an experience. Nevertheless, the whole atmosphere was unhealthy, and you could never predict how things would turn out after the public statement. Today we can announce that we have freedom of speech meaning, one can speak up his mind and not fear that he will lose a job or face difficulty (of course, we are talking about constructive criticism). Tax audits are now carried out exclusively on schedule or in case of non-compliance․
The third significant change that will bring to the growth of the business sector is the amendment of the Tax Code, specifically income tax changes, that are definitely welcomed. The changes are related to the gradual approach of the income tax percentage to the profit tax, which will lead to the fact that many businesses will start whitewashing the employee salaries. It means they will no longer hide the actual amount of salaries. Even if those changes don’t apply to me, in general, it is quite good progress and a big step towards improving the whole business sector. In conclusion, I would like to note that all these “minor” changes contribute to the improvement of the general environment, of course, such optimistic details cannot but change the situation in the country. Small and medium enterprises are more confident, relaxed, and ready to launch new projects. In comparison to the previous regime tax field that seemed or tried to seem beneficial for starting a new business, the present tax field slowly “demolishes” all the barriers that could anyhow stop the progress of a business.
Let me say a few words about the unfulfilled expectations of changes in the tax service. We used to have a period of rapid development and changes when there were introduced the new systems of electronic accounts, electronic signature, and document circulation. All these improvements optimized the processes and had a very positive impact on the overall tax environment. I had big expectations to see further changes after the revolution, but during those two years, we had not a single change or optimization. You may ask what else can be optimized or changed in the field that is already so optimized and simple in use. Here are my thoughts and some ideas. The tax service website has still so many issues that need to be solved. For example, the process of receiving various references and contract electronic signing options are not promoted and practiced. For now, business owners are still avoiding switching to electronic contracts, still having that misconception that a physically signed document has more legal effect than the electronic one. The situation can be changed by promoting the legal force of electronic signing and gradually switching to the electronic signature. There are still many gaps in the infrastructure, and the lack of technological changes makes those gaps even more visible. As long as the business is drowning in bureaucratic issues, there is no way to keep focused on developing and expanding the business. Plus, such optimization can significantly facilitate the accounting work.
We still expect the country to deal with the gaps and issues. With years of experience both in Armenia and Russia, I must admit that in this respect, we still have so much to change to use all the opportunities and make business more profitable for both sides.
UTaxi, Chief Financial Officer Arevshat Ghiasyan
In 2015, Utaxi was only an idea, but today it is one of the leading companies offering online taxi services around the country. The smoothly operating system of the mobile application continually develops and gains new followers. Within our project, Arevshat Giasyan, Chief Financial Officer of UTaxi, shared his thoughts and experience as well as vision and hopes about post-revolutionary Armenia.
“The first thing that was changed or updated and was quite noticeable were the tax service approaches and staff, but those updates do not prove the improvement of the quality at all. As a chief financial officer and an economist by profession, I deal with tax platforms nearly daily. If I try to rate the changes in tax service in the past two years, they can hardly be qualified as changes with a positive tendency. With high expectations about the effectiveness of economic reforms, we now experience minor changes that don’t quite satisfy and bring a positive experience for businesses. From a technical point of view, for example, in terms of tax reports, we had experienced multiple technical problems. It seems that drastic rejuvenation of the personnel brought to a lack of experience, and, in its turn, the gap in experience caused a number of problems in the functionality of the whole system, for example, countless and irrelevant letters from tax authorities and problems with reports that were of technical nature. For instance, we sent the reports on time, they were properly received, and a few days later, the system showed that the report was not accepted, there was a delay, and the company was fined for the delay. Because of the system delay and technical issues, the tax service fines the company without getting into details. The lack of experience of employees and malfunctioning of the system should by no means affect the business.
As for the activity of the company in general in the former and current regimes, I can note that there are no changes. UTaxi has nothing to do with the governing authorities (both the past and current). Of course, we feel that the whole business sector and the environment are healthier, and the most considerable achievement is import restrictions that have been removed (we are talking about informal restrictions). Yes, we are dealing with economic liberalization, but, again, this is not enough for economic growth. The tax policy lives a noticeable regression in terms of technology”.
What impact did the revolution have on the development of the company? Is there a noticeable growth in the last two years?
“I will try to summarize my words and answer the questions. In my experience, there is no precise growth because, in fact, there was no economic activity growth. As an argument, you may show the statistics of economic growth; they may show an illusion of growth, but, in reality, there is no actual growth. The new businesses, the basis for the increase of economic activity and the statistics, did not have high profitability or had short-term development. We don’t have long-term economic activity growth that could turn Armenia into a new alternative to start a business. The same applies to changes in foreign investments, and here we can notice a negative tendency as well. The volume of foreign investments has decreased a lot.
Besides being an economist and business consultant, I also own a business in the IT-sphere. For me, the criterion of low economic activity is that I am still thinking of moving my business from Armenia because my country does not create sufficient conditions for businesses and even for the development of the IT-sphere. There are other countries where you can do the same business on more favorable terms. For example, Estonia is a much smaller country than Armenia, but, due to a number of legislative reforms, you can now do business in the country remotely, get tax benefits, and successfully develop business. And this is already a global trend. Unfortunately, the Armenian authorities – the Ministry of Finance and the Ministry of Economy – do not seem to pay attention to the fact that the country already competes with others in terms of favorable conditions for businesses and investments. It seems that the goal is to collect as many taxes as possible but there are no actions for creating a base to keep the Armenian company within the country, and why not attract Estonian or any other European company to move to Armenia. In a word, Armenia could become an attractive country for investments, which could be a serious asset for such a small country. Alas, we are still waiting for legislative changes to make Armenia attractive for businesses”.
WiMedia, CEO Harutyun Nahapetyan
WiMedia Wi-Fi advertising platform was launched in 2015, providing free Wi-Fi hotspots in public places in Yerevan. With small steps yet big vision, WiMedia has grown into a large advertising company covering the biggest Wi-Fi hotspots in Yerevan (public areas in the city center, Zvartnots International Airport, shopping mall, long route buses, cafes and restaurants, and much more). Thanks to a professional approach and teamwork, WiMedia is now working on improving and delivering intelligent ad distribution algorithms to show more relevant ads to users. Along with the provided software services, WiMedia offers design and marketing services making advertisements more effective and flexible. As one of the leading companies in the IT-sphere, the evaluation of the current situation in the business sector of the country by WiMedia would be of great help. CEO of WiMedia Harutyun Nahapetyan agreed to share his thoughts about post-revolutionary Armenia and his vision about the future.
“First of all, it would be fair to note that the IT sphere is the safest one in the business sector. It has not been subjected to dramatic shocks after the revolution. It was not related to the corrupted regime of the previous government, yet, as part of the society, we were optimistic about getting rid of the corruption and had high hopes that changes would be exceptionally positive.
For me, the changes can be classified as emotional and actual. I will certainly not be mistaken if I speak on behalf of the majority and say that we welcomed the Revolution. Having overcome the previous corrupt system, we all had the desire to work harder and to give as much as possible to our country and contribute to a brighter future. Of course, the business cannot make a profit merely on emotions, so if we talk about actual changes, I will admit that WiMedia had neither positive nor negative changes in two years after the revolution.
Of a globally positive change in the country, I want to mention the systematic and fast approach to social problems. For months the country and almost every business are suffering huge losses from pandemic and quarantine. In this regard, our company has received state support, and we do welcome any effort of our country that tries to mitigate the damage done to businesses.
Of course, there were many expectations, but we need to be objective. After years of stagnation, we should not wait for radical changes in the country. Today the main problem of the current government is the incompetent staff in certain positions, who are not corrupted, but in fact, are unwilling or unable to meet their responsibilities. As a result, we have no progress. If not for this factor, the positive dynamics might have been faster and more noticeable.
Summing up, I would like to add that we will continue our activities in Armenia, we will work on the implementation of new business models that will bring stable income from abroad. Moreover, we have no plan to leave Armenia, eliminate, or move the business. We have great expectations, and we hope that they will be fulfilled”.
