By Mark Dovich
On May 27, Armenia’s National Assembly passed an amendment to the country’s tax code that will result in a considerable increase in property taxes. Finance Minister Atom Janjughazyan voiced his support for the amendment, arguing that local governments, whose budgets are largely dependent on property tax revenues, stand to benefit from the changes. The amendment enters into force on January 1, 2021 and is to be implemented gradually over the course of a three-year period.
Under the new procedure, taxes will be based on a property’s market value rather than its cadastral value, as is currently done. A cadastral value is an estimate of a property’s worth calculated by the government, rather than by the market. A property’s cadastral value is oftentimes significantly lower than its market value.
Therefore, collecting taxes based on a property’s market value, rather than its cadastral value, will considerably raise tax revenues for the government. Janjughazyan himself estimates that the government’s property tax revenue could more than quadruple as a result of the amendment. Currently, Armenia’s property-tax-to-GDP ratio of 0.2 percent is one of Europe’s lowest. As a point of comparison, Georgia’s ratio stands at 1.1 percent, and Russia’s at 1.2 percent.
Under the amendment, tax brackets will be created for apartments and individual residential buildings, with higher taxes paid on properties falling in higher brackets. For instance, any apartment valued on the market at 10 million drams (USD 20,000) or fewer will be taxed at 0.05 percent, whereas apartments valued above that figure will be subject to additional taxation beyond the 0.05 percent baseline. To that end, the government has said it will review real estate prices at least once every two years in order to keep the system up-to-date.
Speaking at a government meeting on May 27, Prime Minister Nikol Pashinyan defended the changes, claiming that the bracketing system detailed above had been chosen in an effort to increase taxes on holders of luxury properties, while keeping taxes affordable for the average citizen. Pashinyan also highlighted that the amendment had been developed over a considerable period of time and had been drafted as a result of in-depth discussions among numerous government bodies.
The government’s move to raise property taxes comes against the backdrop of a deepening economic recession in the country. Largely the result of social restrictions that had been imposed in March to mitigate the public health impact of the ongoing coronavirus crisis, index of economic activity [an indicator close to economic growth] in Armenia contracted 17 percent in April. Economic forecasts for the year expect this recession to continue: the Armenian government is currently predicting a growth rate of -2.0 percent for 2020, while the European Bank for Reconstruction and Development has projected a -3.5 percent growth rate for the region overall.