Assessment of tax performance and tax administration in Armenia

Abstract

This paper has the purpose to look at the dynamic of tax revenues, to describe the present tax situation in Armenia and to underline existing problems, especially in tax administration, that hamper achieving optimal tax performance. The methodology used is secondary data analysis and content analysis. Literature review assesses the importance of tax administration as well as sheds lights on some basic problems of tax administration in developing countries, as well as ways to improve the tax administration. After comparing measurements of tax performance in Armenia with relevant data from other, formerly centrally-planned countries, it appeared that tax collection rate in Armenia is among the lower. However, it seems that Armenian tax rates in themselves, while not very high, are definitely not low to account for low tax revenues. The limited success in increasing tax revenues mainly reflects weaknesses in tax administration. Problems in tax administration range from such trivial ones as a lack of professionals to major ones such as the large size of the hidden economy, a high level of corruption. The conclusion is that while tax policy and tax laws create the potential for raising tax revenues, the actual amount of taxes flowing into the government treasury, to a large extent, depends on the efficiency and effectiveness of the revenue administration. Weaknesses in revenue administration lead to inadequate tax collections in Armenia. Finally, recommendations are made on how to improve tax revenue collection in Armenia.