Abstract
Problems in tax administration, especially direct taxation, are one of the most important challenges for the taxation system of Armenia. The high level of the informal sector further affects the effective functioning of the system and the replenishment of the state budget. In this regard, there is a need for reforms in direct taxation presented in this article. The research objective is to evaluate possible effects of abolishment of proft tax in the Armenian economy. For this purpose, we approached the neoclassical dynamic general equilibrium model presented in expanded form and in discrete time. Impact assessment of the reforms in corporate taxation system in Estonia and Georgia was also based on the same model. Therefore, after the effects of the abolishment of proft tax in the Armenian economy are assessed, a comparative analysis of the results observed with those of Estonia and Georgia will be conducted. The model calculates the effect of changes in income tax rates on government revenues, capital per unit of labor, level of consumption and output in the country. The article also presents the parameterization of the model considering the specifcs of the Armenian economy. The study has revealed that reforming the taxation system for organizations in Armenia will lead to an increase in the general welfare of the population, net investments and aggregate output. At the same time the tax revenues of the state budget of Armenia will decrease by 3.92%. The results of the study will allow the government of Armenia to apply a new approach to taxing the profts of organizations. It will lead to an increase in the transparency of business, a decrease in the level of corruption and the concealment of the profts.
Highlights
Taxation system of the Republic of Armenia is sufficiently developed and adapted to a market economy
Problems in tax administration, especially with direct taxation [1, р. 18], are one of the most important challenges for Armenia’s taxation system, and a high level of the informal sector further affects the effective functioning of the system and replenishment of the state budget
Annual audit is a procedure that verifies the reliability of the declarations provided by the legislation of the RA, the accounts, calculations laid down regarding taxes, baseline data, other documents submitted by an economic operator, as well as the compliance of the actual activity of an economic operator with the requirements of the laws and other legal acts
Summary
Taxation system of the Republic of Armenia (here and after the RA) is sufficiently developed and adapted to a market economy. Violations of Labor Code of the RA as of 09 November 2004 and taxation legislation regarding signing of an employment contract and paying personal income tax were found in 11.1% cases or in 90 economic operators of scheduled audits. In the inspections appointed in accordance with the Criminal Procedure Code of the RA and conducted in 697 organizations, violations were found in 680 organizations, of which 515 in terms of the income tax law, i. Violations in compliance with the legislation of the Labor Code and the payment of personal income tax amounted to 50 (7.3% of the total number of violations, appointed in accordance with the Criminal Procedure Code of the RA). It is necessary to reassess the cadastral valuations in the country, bringing them to the current market value as close as possible This suggestion will increase the revenue of municipal budget to 80 billion drams. In order to reduce the shadow sector in the taxation system and improve business taxation conditions in the RA, we propose to introduce the adopted version of the corporate income taxation (here and after CIT) system used in Estonia and Georgia
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