By Andranik Aboyan
In recent weeks, the Armenian government has proposed sweeping changes to the tax regime, aiming to abolish a preferential tax structure that has benefited many small and medium-sized enterprises (SMEs). Under the current system, these businesses were exempt from value-added tax (VAT) and profit tax, which are set at 20 percent and 18 percent, respectively. Instead, they paid a “simplified tax” of just 5 percent of their annual turnover. The government’s new bill, introduced on November 7, seeks to exclude certain sectors—such as law, consulting, construction, real estate, and design—from this tax advantage, arguing that businesses in these industries enjoy an unfair edge over others.
Deputy Finance Minister Arman Poghosyan defended the reform, claiming that it would ensure greater fairness in the tax system. He pointed out that workers in sectors like healthcare and education pay higher taxes on their salaries, while entrepreneurs in affected sectors pay much less. However, beneath this argument lies a deeper reality—a reality that raises serious concerns about the true motivations behind this initiative.
At its core, this tax reform is not about creating a level playing field but about reinforcing the dominance of large businesses over their smaller counterparts. While the government’s rhetoric may suggest a desire to increase fairness, the reality is that this move disproportionately impacts SMEs, which have long struggled to compete against the economic giants that dominate the market. Rather than addressing the root causes of inequality—such as the consolidation of wealth and power by large corporations—the government is targeting small businesses that already face enormous challenges in the market.
This policy shift is reminiscent of broader patterns seen across capitalist economies, where the state intervenes in ways that ultimately benefit large corporations, often under the guise of fairness or efficiency. By eliminating tax advantages for SMEs in key sectors, the government is facilitating an environment where only the largest players can afford to navigate the complex and burdensome tax system. Smaller businesses, already working with tight margins, will be forced to either comply with new tax rules or face closure. In essence, this reform acts as a mechanism for consolidating wealth and power, as smaller competitors are pushed out in favor of bigger, more resourceful firms.
Critics of the measure have pointed out that it may encourage even greater tax evasion. Small businesses, already under pressure from both high operational costs and an increasingly hostile regulatory environment, may seek ways to avoid paying the new taxes. Far from encouraging transparency, the government’s move could instead deepen the informal economy, undermining its stated goal of greater fiscal responsibility. This is particularly concerning given the persistent issue of tax evasion among larger companies, which the government has largely overlooked.
The proposed tax reform also sheds light on the broader contradictions within the Armenian government’s economic policies. While the ruling Civil Contract party has built its platform on pro-business rhetoric, emphasizing its supposed commitment to economic growth and the welfare of ordinary citizens, the latest tax policy stands in stark contrast to these promises. Rather than tackling the entrenched inequalities within the economy, Civil Contract’s reform seems to be more focused on strengthening the position of large businesses, ensuring they are able to crush smaller competition and further entrench their dominance in the market.
Despite claims of robust economic growth, the government is facing a shortfall in tax revenue, and this reform is positioned as a necessary measure to address that gap. Yet, this raises questions about the sustainability of a growth model that relies on increasing taxes for the small and medium sector while doing little to address the fundamental issue of wealth concentration at the top. The state’s efforts to shore up its budget appear less about balancing the economy and more about securing the interests of the business elite, with little concern for the long-term health of the wider economy.
The government’s critics, including opposition lawmakers, have warned that this move will only hurt SMEs and encourage further tax evasion, ultimately leading to the shutdown of many small businesses. While they acknowledge that the informal economy remains a significant issue, they argue that the government’s focus should be on reforming the informal sector rather than further squeezing the already vulnerable small business community. Unfortunately, this appears to be yet another example of how the state, rather than supporting economic diversity and entrepreneurship, is serving the interests of large corporations.
In the end, this tax reform may be more about maintaining the status quo than about creating real fairness. By ensuring that the tax system continues to favor large businesses, the government is reinforcing the very structures of inequality it claims to be fighting. Small businesses will bear the brunt of this change, with little prospect of competing on an uneven playing field. Rather than dismantling the power of big business, this move helps to solidify its control, leaving the average citizen and entrepreneur to bear the cost.
