Armenian businesses saved $15 million in tax compliance direct costs in 2010-11 as a result of simplified tax reporting procedures introduced with the help of IFC, said Arsen Nazaryan, project manager of the Armenia Investment Climate Reform Project, implemented by IFC, a member of the World Bank Group.

Tax legislation improvements in 2011 were preceded by a preliminary evaluation of the time and money costs for businesses to comply with tax legislation (“Tax Compliance Cost Survey”, IFC, 2010). “This preparatory work helped implement tax reforms smoothly and gave a clearer vision on improvement proposals.”

“Armenian authorities have been responsive to the project, recognized its future benefits and shared maximum information. This greatly facilitated our work. We provided advice on how to improve services for taxpayers as this was essential to improving the overall business environment in the country. In 2010-2012, six service centers for taxpayers have been launched in Armenia, which significantly improved the quality of service. The local business community gave a positive assessment to the streamlined procedures. Moreover, Tax Service of Armenia (part of the State Revenue Committee) was the first in the country to perform risk-based inspections. The next is expected to be labor safety surveillance.”

To streamline tax services, mandatory e-filing was proposed on a step-by-step basis. As of January 2012, all taxpayers above VAT threshold (with annual turnover of AMD 58.35 mln) have to submit tax reports electronically. Currently, 45 tax reporting forms out of 59 are available online.

Are local businesses happy they no longer need to have a direct interaction with a tax official?

“E-filing makes some businesses a bit wary. Small businesses felt uncomfortable in the first months, but gradually they realized that the new system saves them time and money,” said A. Nazaryan. Physical contact with a tax official was not necessarily a backdoor channel “to settle affairs”.

There was another, more commonplace purpose: assistance in editing tax reports, particularly for smaller businesses with less experience and knowledge of legislation and reporting procedures – and less self-confidence.

“Still, they are learning to work in the new environment, which is ultimately more efficient for both sides.”

IFC also participated in drafting a proposition for a one-stop shop business registration center in Yerevan in 2011.

“The benefits of the center are significant – in 15 minutes you can register both a business and a nonprofit organization, with free consulting on site. However, the use of online registrations has been meager. There may be several reasons for that, including the lack of information, and the need to have an e-signature, the penetration of which is still not very high. Businesses still prefer the traditional method of physical registration. Still, we think that public opinion will change over time, and here public education and timely dissemination of information means a lot,” said A. Nazaryan.

The Armenia Investment Climate Reform Project is the second phase of a program started in 2009 and  scheduled to run until 2014.

“In the first round we focused on simplification of business regulations, in order to make doing business easier in the country, hence advancing Armenia in the IFC/ World Bank Doing Business report ranking. Now we have selected two areas not surveyed by the Doing Business report, i.e., food safety and inspection improvement.”

The Armenia Investment Climate Reform project is supported with funds from the Austrian Ministry of Finance and the Netherlands Ministry of Foreign Affairs.