Taxing Times for Armenian Migrant Workers

New rules apply only to employees of Armenia-based companies that sign up to the scheme.

In a bid to boost government revenues, the Armenian parliament has changed the law to allow expatriates to pay taxes at home.

Getting them to do so might seem an impossible task, but the government has a plan - if expats are employed by a company in Armenia, the firm will receive a five per cent rebate on company tax if it deducts income tax from salaries.

The bill passed on May 7 despite concerns raised by opposition politicians who said it was unfair and unworkable, and unlikely to bring in the kind of tax receipts the government was hoping for.

The companies being asked to sign up to the new deal - which is optional - are involved in providing construction services in Russia, or in running tyre-fitting shops, another sector in which many expat Armenians work. If the firms agree, the Armenian nationals they employ abroad will pay income tax at 13 per cent, less than the 24 per cent they would pay at home.

Taxing income earned abroad has been made possible by Armenia's accession to the Eurasian Economic Union in January, which provides for freedom of movement for nationals of member states without the risk of dual taxation.

The government's migration agency says that between 80,000 and 120,000 people travel to Russia every year to do seasonal work, returning home for the winter. Some stay longer - the agency says between 900,000 and one million are there for a period of two or three years. Labour migrants send large sums of money home to their families, and the inflows prop up a struggling domestic economy.

Some of those opposed to the bill argue that by offering tax rebates to companies that specialise in contract work outside Armenia, the government is effectively incentivising emigration. They say no one has calculated what the financial gains will be, or even how many companies are likely to take up the offer.

"At first sight, this law is not bad," said Aram Manukyan of the opposition Armenian National Congress told IWPR. "However, the statistics show that about half of the Armenian nationals who go abroad for work do not return. People are emigrating due to unemployment, and the government is rewarding organisations that find them jobs abroad."

Vahram Baghdasaryan, the parliamentary leader of the ruling Republican Party, said he saw no downsides to the tax changes.

"All that's happening is that people are becoming taxpayers in their own country. It's all positive; there are no threats." Baghdasaryan told IWPR. As for the increase in revenues, he said, "I don't think we are talking about the kind of figures that would let us fix serious problems, but it's worth remembering that even the smallest revenues can add up to a large sum."

Ashot Yeghiazaryan, an economist at Yerevan State University, pointed out that hopes of raising substantial tax earnings from Armenian builders working abroad should be tempered by the fact that the Russian economy was in recession and the job market there - especially in construction - had less need for imported labour.

"It isn't about the law - our construction companies can't be competitive in the Russian market," he said.

Artsvik Minasyan, a parliament from the opposition Dashnaktsutyun party, is more optimistic, pointing out that the workers covered by the new arrangements are employed by Armenia-based firms and are paid in drams rather than roubles. The lower tax rate of 13 per cent they are being offered is the same as they would pay if they registered with the Russian revenue authorities.

"Labour migrants from Armenia won't lose out financially," he said. "They will be protected from currency [exchange-rate] risks as they will get paid in drams," he said, adding that this legal tax levy would be cheaper as well as safer than the informal fees that migrants have to hand out to work illegally in Russia.

One unresolved issue was raised in parliament at the end of May. Prosperous Armenia politician Mikael Melkumyan asked Labour and Welfare Minister Artem Asatryan whether expats who paid Armenian taxes would be eligible to claim family and other benefits just as they would at home.

"It's a serious matter. People need to know," Melkumyan said.

Asatryan did not really answer the question, saying merely that welfare benefits were paid to low-income families and one of the criteria was not having steady earnings.

Marianna Ghahramanyan is a freelance journalist in Armenia.