Expected Tax Rate Changes in the Banking System

The Government of Armenia has approved a package of legislative proposals aimed at making amendments to the Tax Code of the Republic of Armenia and the Law on State Duties, considering them urgent.

Under the current tax regulations, most financial operations of banks are exempt from VAT. Simultaneously, since 2020, the profit tax rate has been reduced by 2 percentage points, while the income tax scale has been replaced by a flat rate of 23%, which has gradually decreased to 20% by 2023. In certain cases, the tax burden on dividends has also been eased. The purpose of these reductions was to decrease the costs of export-oriented sectors through direct tax cuts and to enhance competitiveness. Consequently, the banking system, which is not entirely part of the export sector and is exempt from VAT, has benefited from the policy of reducing direct taxes.

The aim of the proposals is to establish a justified tax burden and effective regulations for the banking sector. The package also creates additional economic incentives for banks with the intention of listing shares on stock exchanges. It is expected that tax rates on banking dividends will be increased.

In discussing the acceptance of the proposals, the Prime Minister noted, “Recently, there has been a significant decrease in commission fees for cashless transactions for small businesses. We are currently discussing this, and I am confident that we will see results in the near future. There will be a noticeable drop in interest rates for small and medium-sized enterprises with positive banking histories, specifically structured, and of course, we encourage the banking system to express the established peace in a more visible form on banking rates.”