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Armenia’s Tax Reform Brings More Public Revenues and a Fairer Tax Code

November 7, 2016

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Photo credit: World Bank


Faced with a slowing economy, sinking remittances, and taxpayer discontent, the Armenian government was eager to reform its tax systems. The World Bank’s support was essential in creating a more service-oriented and efficient tax administration, which has generated higher public revenues for the government and a fairer tax code for the people of Armenia.

Challenge

At the start of the project in 2012, Armenia faced many adverse conditions. The country’s tax-to-GDP (16.3 percent) and tax productivity were persistently below regional averages and other lower-middle-income countries, even during periods of high growth. Administrative deficiencies, including weak capacity to detect and penalize tax fraud and corruption, undermined compliance and contributed to widespread informal business activities. At the same time, taxpayers faced high compliance costs, including onerous tax filing requirements, with an average taxpayer spending 581 hours annually to file taxes.


" Armenia needed higher revenue generation to deliver more and better services to the general public… Tax administration was still heavily reliant on paper, manual, and face-to-face interactions, which is not the most efficient way of conducting tax collection. "
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Sebastian Eckardt

Former task team leader of the project


Approach

In order to create a cutting-edge revenue generating agency for the government and excellent public services for the Armenian taxpayers, the World Bank worked with the government to upgrade the physical (IT) infrastructure, streamline business processes, and train tax officials.

Results

By the latest project evaluation in spring of 2016, about 35,000 tax inspectors had been trained. About 96 percent of tax services and documents were provided and filed electronically, and there had been a significant reduction in time for tax payments (268 hours). The tax administration is now collecting more taxes (20 percent of GDP, up from 16.3 percent). The ratio of tax collected to operating costs has increased from 74 in 2012 to 111 in 2015. The reforms offer taxpayers a more efficient tax administration, including electronic filing of tax returns instead of time-consuming and unpredictable interactions with tax officials, and a fairer tax code, especially for the poorest parts of the population and small businesses.


" We do not want any new services. The tax authority should improve the quality and fairness of the services it provides today. "

Taxpayer survey: The most common answer to a question asking what new services should be delivered by the tax authority.


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Photo credit: World Bank


Bank Group Contribution

The World Bank Group contributed a $12 million IDA credit for the project.

Partners

The project was implemented in close collaboration with USAID.

Moving Forward

The project is on track to end in December 2017.


" The project is doing what it is supposed to do. "
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Migara de Silva

Current task team leader of the project

Beneficiaries

Businesses and individual taxpayers are benefiting from the current reform program. In particular, small and medium-sized enterprises (SMEs) and low-income taxpayers notice a difference, due to changes in tax policy and modernization of the Armenian tax agency.

Learn More

Project page: Tax Administration Modernization Project

US$12.1 million
of IDA credit was used for the project.