Armenia has introduced a flat tax of 23% as of January 1, 2020, regardless of income.

These changes will be felt first and foremost by people with large salaries, who earlier paid up to 36% of their income. Those in the lower tax brackets will still pay the same percentage as before.

The government says the new approach will cause employers to stop hiding the high salaries of their employees, which will in turn help propel the economy with additional income to the budget.

However, experts are weary that the reform will create new problems in society by further increasing polarization.

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As things were

Prior to the reform, there were three tax brackets.

The lowest tier included people whose salaries did not exceed 150,000 drams ($314), and for whom the tax rate was 23% of their salary.

Those who received between 150,000 AMD up to 2 million AMD ($4,192) paid 28% of their income. For those who received between two million drams and higher, the tax was the highest: 36%.

How they’ll be now

The country’s new tax system will set a flat taxation rate of 23%, effectively only including those of the former second and third taxation tiers

65% of those who receive a steady salary in the country receive up to 150,000 drams, the Ministry of Finance reports.

The government also announced that starting each year until 2023, taxes will be reduced by one percent. That is, by 2023, the income tax will be at the level of 20%.

Experts concerned about increasing wealth polarization

Member of the ruling My Step party and chairman of the National Assembly’s Economic Affairs Committee Babken Tunyan believes that these changes are not focused on the social factor, but on encouraging employers to come clean about the high salaries of their employees:

“Naturally, the income of those who receive above 150 thousand drams will increase. However, in many cases, this income tax lay on the shoulders of the employer anyway. Therefore, the main advantage of the reform will be that Armenian goods and services should become more competitive, which will further affect workers. ”

Some experts have negatively assessed income tax reform.

In particular, economist Tadevos Avetisyan considers it unfair that the real salary of citizens will only increase in the case of already high earners:

“Citizens with a salary below the minimum consumer basket and considered the working poor make up 25% of the total number of workers. Under the new taxation mechanism, their incomes will not increase, since in their case the interest rate will remain the same … But in parallel, the real incomes of people with high salaries will increase, because the current interest rates (28% and 36%) as a result of the equation income tax will be reduced to 23%.”

Avetisyan worries the existing social polarization in Armenia will increase even more as the society will be further divided into very poor and very rich.