Armenia’s middle class hit by new taxation amendments

The taxes imposed on registered employees in Armenia will change in accordance with new amendments that entered into force on 1 January 2018. Employees with salaries below AMD 150 000 (USD 310) will pay less income tax than before as the rate has been reduced from 24.4% to 23%.

However, the rate has been increase for employees who have higher salaries:

For employees with a salary ranging from AMD 150 000 up to AMD 2 million (USD 4 140) the new rate will be 28% (previously 26%).

For employees whose salaries exceed AMD 2million, the rate will remain unchanged (36%).

Apart from income tax, all employees have to pay AMD 1 000 (about USD 20) to the Servicemen Insurance Fund. Those who were born after 1 January 1974 will also have to make a mandatory monthly contribution to the pension savings fund at a rate of 5%.

Consequently, those who earn AMD 150 000 will take home AMD 107 000 after paying the following taxes:

• Income tax – AMD 34 500;
• Social payments to the pension savings fund- AMD 7 500;
• Contribution to the Servicemen Insurance Fund – AMD 1 000.

IT sphere employees are the first to speak out against these amendments as they have the highest salaries:

“Those who work legally are urged to move into ‘a dark field’. Is it fair to press on IT specialists so much and set the income tax at a rate of 36%? The government says ‘let’s subjugate those people’. We thus press hard on the people, telling them: leave the country. But they are the linchpin of this sphere. So, a person will either tolerate it or get offended and leave. The government is artificially posing problems to the working people,” said Karen Vardanyan, Chairman of the Union of Information Technology Enterprises (UITE).

However, government officials believe that the tax load is fairly distributed: those who have low salaries pay less, whereas those who receive higher salaries pay more. It is assumed that the tax collection rate is not going to drop. On the contrary, it will increase by approximately 6%.

Meanwhile, economic experts think that amidst the expected tax increases this situation will hit the middle class hard and that the people’s purchasing capacity will drop:

“The economic policy sword is directed against the middle class so as to prevent its formation. It serves certain political goals. Otherwise, the middle layer, which has always been the driving power of the economy, would have stayed beyond all that.  A normal, democratic economy is an automotive power, whereas in such authoritarian systems the middle class is an obstacle because its activeness always hinders the ruling system. They roll over on the middle class so that it can’t straighten up, increase their own income and have their own political vision, approaches and objectives,” said Vahagn Khachatryan, an economist.