On January 19, the USLGPSEA addressed a letter to the Prime Minister of the Republic of Armenia in connection with the adoption of the amendments to the law on raising “sticker fees” without discussion with social partners.
In the letter, we suggested initiating discussions with social partners to revise the law adopted, in particular, we proposed to review the socially unfair tax policy to cover the expenses required for the insurance of servicemen, and to avoid the “crowdfunding” style of internal revenue.
Almost two months later we received a response to our letter from the Ministry of Labor and Welfare. The response is in the usual style of our public institutions: ignoring the most important issues raised, repeating our own statements to us, persistently raising the same theses, and being convinced of their sole truth.
Thus, the received answer describes the fact that the “Compensation for Damages Caused to the Life or Health of Soldiers during the Defense of the Homeland Act” has been amended for about one page, explains why they it was amended and who the amendments are passed, and how the law will function. However, the ministry persistently keeps silent about the issue we have raised, that is, the amendments to the law have been adopted practically in secret, urgently, without public discussion, and by violating the national tripartite agreement. Our suggestion to organize discussions on the revision of the law is also ignored. The letter does not say anything about our other call to bring social security back from the “crowdfunding” model to the “classic” model.
However, the ministry considered it necessary to refer to our proposal to reconsider the flat tax policy, bringing exactly two-pages explanation on why it will not be done. The explanation includes all the descriptions of tax law, the transition to falt-taxation, and the motivations behind it. but the above-mentioned justifications contain many incorrect, unsubstantiated, superficial assertions, and as always, “an invention of the bicycle”. The main thesis is that flat taxation is supposed to help increase competition, investment attractiveness, economic activity, and reduce the shadow economy. At the same time, the tax policy is compared with the tax policies in the “Eurasian-union countries” and in “comparable other countries”, where the corporate tax is 20% (Russia-Kazakhstan) or less (Belarus – 18%) compared to the pan-European average (~ 22%). But it should be noted that other Eurasian countries are behind Armenia in terms of income inequality [1], social progress [2], informal employment [3]. According to the Global Competitiveness Index [4], Russia, Kazakhstan and Armenia are almost on the same level, while Belarus is not part of the world economy at all. Moreover, as far as investment freedom is concerned, the Eurasian-union countries are incomparably behind Armenia [5]։ they are in the lowest positions in the chart of the world countries, while Armenia’s index is above average. In other words, low taxes in other Eurasian-union countries have not contributed positively to the expectations mentioned by the Armenian authorities, so such justifications are contradictory. Besides, it is not clear by which logic the Eurasian-union countries are considered comparable countries with Armenia. In other Eurasian-union countries, the share of the private sector in the economy is much lower (in Belarus and Kazakhstan by even several times) and the large enterprises are mainly state-owned. In addition, two of the Eurasian-union countries are mostly oil economies, where state revenues are generated on the basis of huge fuel exports. Therefore, in this case, it makes no sense to study their corporate tax policy in the context of comparison with Armenia.
In general, despite the authorities’ justifications, flat taxation is applied in very few countries of the world; numerous studies have shown that its whole purpose is at the expense of the majority of the society to give privilege to big businesses and the rich. It is noteworthy that the ministry calls the latter “qualified” labor force. “The application of progressive rates in practice means a greater taxation of ‘qualified’ labor, which is more productive in nature“,- the ministry’s response states reads. In fact, the authorities treat most of Armenia’s employees with disrespect, including teachers, scientists, civil and community servants, employees of service companies, considering them non-“qualified” employees, whose taxation is fine. As we understand, from the point of view of the authorities, only the President of the Republic of Armenia, the Prime Minister, the Speaker of the Parliament, the ministers, some high-ranking officials and the software developers, who are a small fraction of the society, do more productive work than their teacher or scientist, so it is not good to tax them.
Thus, in a letter addressed to us, the Government, avoiding any other opinion, ignores the most basic of the issues raised, inventing a parallel reality and tries everything to “economy”.