Tax Code Should Exclude Provisions Relating to Legal Service Providers: Statement

The provision in Article 254 of the Tax Code of the Republic of Armenia, as outlined in Article 33 of the draft amendments to the tax code, which states that legal service providers can no longer be taxed with turnover tax, is deemed highly problematic and inappropriate for the following reasons. This was stated in a declaration issued by the Foundation for the Development and Protection of Law.

The statement further notes:

“Legal and advocacy activities are not inherently highly profitable, and legal firms with high turnover are already subject to profit tax and VAT. Therefore, bringing other companies and individual entrepreneurs into this tax domain will not provide any significant financial revenue to the state budget.

In Armenia, the culture of utilizing professional legal and advocacy services is still underdeveloped, one of the primary reasons being the low payment capacity or complete inability to pay of citizens who need these services. The number of citizens with low payment capacity and inability to pay is excessively large in Armenia, as evidenced by the overwhelming workload of the Public Defender’s Office and the number of citizens seeking assistance in both criminal and civil cases.

Considering that legal and advocacy activities are not highly profitable, the proposed changes will inevitably and directly lead to an increase in the cost of most services, proportional to the tax burden of the service provider, which will increase by around 35%. As a result, the number of individuals who can financially access legal and advocacy services will decrease even further, leading to a) individuals refusing to utilize legal services and violating their right to access the courts, and also resolving legal issues through illegal means, b) an increase in the number of indigent citizens applying to the Public Defender’s Office, which will impose an additional burden on the state to accommodate a broader range of groups entitled to use the services of the Public Defender’s Office.

Finally, legal and advocacy activities are primarily a form of human rights protection, and their accessibility is a fundamental issue for the establishment of the rule of law. The increase in costs for legal and advocacy services will make it impossible for individuals to access professional legal assistance, and the resolution of legal problems through illegal means will constitute a significant setback on the path to building a rule of law in the Republic of Armenia.

In light of the above, we propose to remove the provision from the draft pertaining to Article 254 of the Tax Code, which states that legal service providers can no longer be taxed with turnover tax.