Reports of Unmet Tax Revenues and Fraudulent Activities Do Not Reflect Reality, Says State Revenue Committee

The State Revenue Committee (SRC) deems it necessary to clarify that media reports claiming tax revenues have not been met and that fraud has occurred are not in line with reality. The unprofessional conclusions drawn in these reports are sufficient to conclude that we are dealing with an obviously directed process. This information comes from the SRC's Department of Information and Public Relations.

For instance, in the area of state budget preparation and execution, the majority of countries (including the Republic of Armenia until January 1, 2018) apply a cash accounting method for revenue recognition. This means that actual payments made to the state budget during the reporting year are considered revenues for that year’s state budget, regardless of the existence of tax declarations or audit reports. From this perspective, the SRC secured a net revenue of 1,306.2 billion AMD for the state budget in 2018 (including the remaining balance of the unified account, without the amounts collected and returned to taxpayers), which exceeds the comparable figure of the previous year by approximately 164.8 billion AMD and exceeds the programmatic indicator planned in the 2018 budget by 57.7 billion AMD.

It is important to note that the SRC has no ability to intervene in the process of actual payments to the state budget made by taxpayers, as these are conducted through banking and treasury systems.

Since January 1, 2018, the Tax Code's Article 18, paragraph 4 stipulates that "Payment of tax (including advance payments), fines, and/or penalties is considered executed based on the payment order of the bank servicing the payer on the day it is credited to the unified treasury account by the Central Bank of the Republic of Armenia," while Article 325, paragraph 8 states that "payments made into the unified account are not considered tax revenues and payments to the state budget until obligations against them are settled." This legislative change resulted in the treasury system recognizing state budget tax revenues only against funds paid into the unified account pertaining to tax obligations arising from tax declarations, audit reports, or other grounds, thereby altering the previously applied revenue recognition rules. The new recognition rules applied by the treasury system of the Ministry of Finance of the Republic of Armenia have both positive and negative aspects. On the positive side, the need for multiple treasury accounts has been eliminated, and since January 1, 2018, the concept of "overpayment creation" has ceased to exist. Thus, the term "falsification of the depletion of overpayment numbers" mentioned in the article is simply a result of legal ignorance and unprofessional approach. On the negative side, funds recognized as tax revenues can decrease as a result of adjustments, thus reducing state budget revenues.

State budget revenues are accounted for both daily and monthly, and if funds are returned to the unified account following the submission of adjustment declarations or other documents that reduce tax liabilities, the already summarized data are not revised, and the refunded amounts are deducted from the tax revenues collected on the day of return or during the corresponding period. Therefore, opinions about recalculations or additional assessments are groundless.

As for the recognition of tax revenues after December 20, the SRC clarifies that tax revenues can be recognized after this date not only through revised declarations increasing tax liabilities or by audit reports, or by the court or appeal commission decisions, but also through late submitted tax declarations or late payments, or through the tax authority independently adjusting taxpayers' tax obligations in accordance with paragraph 6 of Article 44 of the Tax Code, which started to be applied after November 1, 2018.

To provide completeness to this statement, the committee informs that the average monthly number of primary declarations submitted to the tax authority is 114,712, while the average monthly number of adjusting declarations is 61,532. As a result of adjustments made during 2018, around 67.0 billion AMD were returned to the unified account from the state budget revenues, which were deducted from the accumulated revenues mentioned at the beginning of this article.

Similarly, the amounts returned to the unified account in January 2019 do not constitute an exception, and they also reduced the tax revenues collected in January 2019. Despite this, the results of the January 2019 collections, both by cash accounting method and by the unified account settlement method, significantly exceed the corresponding figures for January 2018 (these are periodically published on the official electronic sites of the SRC and the Ministry of Finance). Therefore, claims regarding delays in the salaries of teachers or pensions of retirees, as mentioned in the article, cannot be justified by the alleged inadequacy of budget revenues.

Regarding audit reports, since July 1, 2018, a new amendment to the Tax Code came into force concerning taxpayers, which states that if tax liabilities are established by audits or other administrative acts conducted by the tax authority, these audits or acts become uncontestable within a two-month period after coming into force, and tax liabilities recorded therein are subject to execution within 10 days following the day these acts become uncontestable. In order to comply with this legal requirement, under the directive of the head of the tax authority, staff were obliged to delete already entered audit acts from the tax authority's electronic management system, so that tax liabilities would not be settled from the unified account in favor of the state budget before the legally mandated deadlines. A total of 1,731 audit acts have been deleted, resulting in funds already settled in favor of the state budget being returned to the unified account. Deleted or audit acts drafted after July 1, 2018, are entered into the electronic system by tax officials in accordance with the two-month period from the date of their drafting and the next day following the 10th day, in order to maintain compliance with the legal procedures for settling taxpayers' liabilities.

This process is a continuous work process until electronic automated management solutions are implemented (currently in the pilot testing phase). For statistical context, as of February 1, 2019, there are approximately 890 audit or other administrative acts composed with a total amount of approximately 47.5 billion AMD, which are not recorded in the respective taxpayers' personal accounts, as they have not yet become uncontestable or are under appeal.

Thus, it is at least absurd to think that funds were deposited into the budget with the condition that they should be returned in January and February. Furthermore, based on separate sections removed from the "Taxpayer-3" electronic system, with a gross violation of information security, it is certainly impossible to draw even approximate conclusions.

Simultaneously, the SRC has initiated an internal inquiry to identify individuals who released information constituting tax secrecy and to begin holding them accountable. We request to refrain from circulating directed publications and to verify the facts with the State Revenue Committee in each such case.