Tax evasion in Armenia: measures to strengthen tax compliance

Abstract

Flaws and drawbacks in tax administration are among the major challenges that hinder the robust development of Armenian economy and efficient functioning of public administration system. It is a problem that cannot be underestimated or ignored, as it is directly related to the tax payments which are the major source of government funds. Due to indigenous problems related to the wretched culture of tax compliance, inefficient tax administration and visible loopholes in tax legislation, a huge portion of economic activities successfully remains hidden and fosters the expansion of shadow economy. Tax evasion therefore is a major issue pending society’s attention and urgent resolution. The overcoming of these challenges requires complex approach and a program of actions. The list of activities includes establishment of strict rules and capacity to monitor and enforce the compliance. There is a need to support the preparation and the implementation of demand-oriented strategies which will definitely be the prerequisite of effective policy. Another critical point is that the perception by the taxpayers is somewhat negative and all kinds of initiatives and reforms by the state authorities are often viewed as an attempt to harm the linear businessman rather than to support and facilitate the state-taxpayer interactions. In this context, the policy internship project elucidates the important aspects of tax evasion, identifies the economic, social, psychological factors that has its say in the attitudes of taxpayers to tax compliance, evaluates the level of tax evasion in Armenia, analyzes possible factors that impede to overcome evasion and gives recommendations how to reduce this phenomenon, facilitate the procedure of tax payment, and motivate economic entities pay taxes voluntarily or enforce them by law.