Interview

Arthur Osikyan
PhD in Law, Deputy Head of the State Taxation Services at the Armenian Government

April 2007

THE MAIN PURPOSE OF THE ACTIVITIES OF THE STATE TAXATION SERVICES IS THE PROTECTION OF RIGHTS OF HONEST TAXPAYERS

- Mr. Osikyan, which are the present government’s main legal problems of the state taxation services in Armenia, and is there a need for a reform?

- Allow me to initiate that important reforms have taken place in the past years in the state taxation services department. These reforms were the government’s systematic reformation’s logical continuation and result. For more then four years the law about state taxation has been implemented, and as a result also twenty legislative acts, which mainly have been reformed by the state taxation system. Legally some principal clauses have been foreseen, state taxation services fundamental principles, which have both legal and anti-corruption significance. For instance it is only possible to work with state taxation services through the result of a contest, which essentially diminishes the entry of unskilled candidates in the governmental system, also a rotation principle has been established legally, which indicates that state taxation workers must vary their post after some time to an equal position, codes of conduct for state taxation workers have been accepted, legally some limitations have been foreseen for state taxation workers. However there are still some unresolved problems both legal and administrative. Recently the Armenian government has granted the state taxation services’ three year program, and thus there will be an attempt to resolve the main legal issues. I would like to mention also, that the Unites States international development agency supports the realization of the work immediately, and today there is already a selected advisory organization and a program for joint activities, which stipulate legal, organizational and improvement of state taxation administration events. I believe that the latter will improve essentially.

- What main infringement of law occurs at the legal interrelations of the state taxation services? What are the reasons and the benefits of the infringement according to you?

The infringements of taxation character are of different natures, but the main consequence is the same, the taxes and other mandatory payments are either not being completely paid or not paid at all. The main infringements are, according to our check ups, miscalculation of the taxes, delaying the payments, carrying out accounting with contravention, concealing the tax object, transactions without goods, inclining false documentation of supplies and services and to attain illegal entrepreneurial without license. The result of these infringements is complementary taxation obligations, which are specified through a monitoring act, and established fines.  The infringers may also submit to the administrative or criminal liability depending on the extent of the damage.  Regarding the reasons of the infringements, I think, it is the lack of knowledge in the taxation legislation, unqualified accounting, yet the most “dangerous” reason is the refusal to pay taxes. The favorable reason is the failure of timely prevention, the imperfection of the regulations; however our daily efforts, work and plans are directed.

- What role does the government of Armenia’s state taxation service’s operative investigation administration have in taxation infringement prevention, hinder and revelation? How productive is your governing bodies’ work towards prevention and revelation of taxation legislation infringement?

- I must indicate that the government of Armenia’s state taxation service’s operative investigation administration’s activities are estimated by “The state taxation services” and “The investigation organization in Armenia” conventions. The main legal “instrument”, which is used by the operative investigation administration, to prevent taxation infringement is monitoring. The monitoring is mainly directed towards preventing illegal entrepreneurial and transactions without goods as well as not registering the objects of the entrepreneurial activities. If the results show necessary legal grounds, subsequently topics are prepared and sent to the Armenian state service for investigation in the framework of the legislation. Moreover the main part of the prepared topics is sent to the state service’s investigating department by the operative investigation administration. I believe that there is an existing gap in the legal field of the administrations entire work. The constitution about “The operative investigation administration” would fundamentally increase the productivity of the work, but has not yet been accepted. Nevertheless the law, which was proposed by the national assembly, has been proved in the second reading. Regarding the productivity of the department’s work, it is decided that the registered and the renewal of the state finances as well as the prepared and current amount of topics have outnumbered last year’s achievements according to the summarized results.

- How would you evaluate the taxation relations legislation quality? Is the level of the existing legislation adequate for the struggle against taxation infringements and delinquency?

- The taxation legislation is improving and changing.  That signifies that it is far from being complete. From the perspective of the struggle against taxation infringement, I have to indicate that Armenia’s criminal legislation (article 205) was enhanced (in June 1st 2006) a year ago. The essential purpose was to fill the legislative gap, which was being abused by the dishonest taxpayers. Until the improvements were made the refusal to pay taxes was a crime if the taxpayer misrepresented their taxation documentations. With the changes the behavior is criminally prosecuted if the individual withholds financial information when paying the taxes. According to the old version of article 205 the behavior was criminalized if taxes and other mandatory payments up to 1M AMD were rejected.  With the current legislation however, refused payments up to 2M AMD are criminalized. Therefore if the refused payments are less than 2M MD, the individual will submit to the administrative liability. Due to the changes, the first time criminal can avoid criminal responsibility, if he/she compensates the government’s costs. I also have to point out that according to article 56 in the Armenian criminal procedure law; the taxation body is considered the investigating body, which investigates taxation crimes through the criminal procedure legislation. The taxation crimes are refusal to pay taxes, illegal entrepreneurial, premeditated insolvency, false insolvency, false entrepreneurial, misrepresented excise duty stamps and so on. The Armenian state service investigation department had during 2002 only initiated one criminal case. The following years the investigation department started using their preserved jurisdiction and therefore it has initiated 4 criminal cases in 2003, 24 in 2004, 37 in 2005 and 46 in 2006, and during the past three months 12 have been initiated. Mainly 60 percent of the cases are concerning refusal of tax and other mandatory payments as well as illegal entrepreneurial. In the frameworks of the judicial improvements have been to preserve an investigating role for the State taxation services and in the forthcoming month the Armenian state service will create an Investigation department, whose investigation subjection will store the taxation crimes of the Armenian criminal law book. I think this evidence will benefit the reestablishment of the losses that the government has had due to the taxation crimes.

-What work is being done at the moment to raise the State taxation workers’ professional standard and to civilize the relationship with the taxpayers?

-Firstly I have already mentioned that as a result of the “State taxation services” law, it is only possible to work with state taxation services through the result of a contest. The rules of the contest are decided by the government. There is also a specific list of professions and specific criteria that require participation in the contest. Also the State taxation workers are required to pass an attestation every three years the least, which results in reduction and dismissal of posts. I think the attestation work forces the workers to be more vigilant and make their knowledge more profound. In the frameworks of the mentioned improvements above, it is also planned to create a learning center for State taxation workers which is furnished with technical and professional lecturers. Currently there are State taxation service ministerial and appeal commissions that discuss the state taxation workers’ omissions, infringements, the breaches of the codes of conduct and they are granted with proper valuation. Suitable taxpayers are invited to the commission meetings. An investigation strategy has been realized by the chief of the Armenian state service, where new perspectives and European investigation principles have been implemented.

-Are there any questions that have not been inquired in this interview and that you would like to touch upon?

-I would simply like to assure you that that the main purpose of the activities of the State taxation services is the protection of rights of honest taxpayers and the avoidance of interference in their work. Nevertheless the dishonest taxpayers, who don’t commit to their constitutional responsibility, will be treated with the most severe methods for the sake of the wellbeing of our government and society. Are there still gaps? Of course there are. Is there neglect? Most certainly there is. The significance is however that this is clear to us and that we will do anything to solve these problems.

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