By Gevorg Tosunyan
Armenia’s government is pushing for major tax reforms that aim to create an equal playing field between small and large businesses, but the proposed changes are raising serious concerns among small and medium-sized enterprises (SMEs).
Key changes proposed
The proposed reform will be implemented in two phases. Starting in January 2025, the turnover tax rate, which is levied on a business’s gross revenue, will double from 5% to 10%. This marks the first phase of what the government describes as a gradual transition away from the turnover tax system.
The second phase, scheduled to begin July 1, 2025, will introduce more dramatic changes. If the proposed legislative package passes, many businesses currently under the turnover tax system will be required to transition to the general taxation system, which includes Value Added Tax (VAT) at 20% and profit tax at 18%.
The reform will primarily affect individual entrepreneurs who provide various professional services and operate as SMEs under the 5% tax system. The changes will affect businesses in construction and civil engineering, real estate operations, and various professional services. Legal and accounting firms, scientific and technical activities providers, and healthcare services will all fall under the new system.
The government argues that the current system creates tax inequity. Deputy Finance Minister Arman Poghosyan highlighted this disparity during parliamentary hearings on November 19: “Today, a medical worker or teacher pays 20% income tax on their salary, while an individual entrepreneur with the same qualifications either pays no taxes under the micro-enterprise system or only 5% turnover tax.”
The government maintains that the draft law has undergone public discussions and some concessions have been made, including postponing the implementation date from January 1 to July 1, 2025. Several sectors, including veterinary services, social care services, and scientific research providers have been temporarily excluded from the first phase of changes.
Opposition and concerns
The initiative has faced sharp criticism from professional communities and experts. Sergey Muradyan, director of Step Consulting, a Yerevan-based firm, points out that these changes contradict the government’s 2021-2026 program, which emphasized supporting SMEs and simplifying their tax administration.
Nairi Sargsyan, a former aide to Prime Minister Pashinyan, notes that the transition will significantly complicate tax administration for small businesses. While the current turnover tax regulations occupy just 12 pages in the Tax Code, VAT, and profit tax regulations span hundreds of pages.
The legal community has been particularly vocal in its opposition. Lawyers argue that the reform will make legal services unaffordable for many citizens who currently rely on individual practitioners offering services at lower rates due to the current favorable tax environment. Some have gone so far as to label the initiative a “tax terror.”
Current tax system overview
Armenia currently operates two main taxation systems. The general system includes VAT at 20%, one of the highest rates in the EAEU region, and profit tax at 18%, which was recently reduced from 20% to attract investments. The special system includes a turnover tax of 5% for businesses with annual turnover up to 115 million drams ($296,000), alongside a micro-enterprise tax system offering special privileges for very small businesses.
The draft legislation has not yet been included in the National Assembly’s agenda, but if implemented, it will mark a significant shift in Armenia’s tax landscape, particularly affecting small and medium-sized businesses.
The changes will not yet affect the food or clothing markets; however, once these changes are implemented, the government will address those sectors as well. According to the 2022–2025 Tax Revenue Management Program, it is planned to gradually phase out the turnover tax and transition to the general taxation system. This means that small businesses will need to pay 20% VAT and/or 18% profit tax instead of the current 5%.
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