Epress.am News from Armenia
The Cabinet of Nikol Pashinyan has adopted draft proposals to amend the tax code by adopting a progressive property tax regulation.
The current regulations for property taxation leave much of the real estate undertaxed as there is a 3mln AMD non-taxable threshold and the property is evaluated by cadaster values and not market liquidity values. This is intended to be changed wherein non-taxable values will be close to zero and the property value has already been aligned to market prices.
Prime Minister Pashinyan has emphasized that adoption of a progressive property taxation regime will soothe the criticism of flattening income taxes in Armenia and will serve to fill in the gap from losses due to flattening. “Back then we said that we will resolve the issue of progressive increase of taxes [and social justice] by the property tax system reforms,” said Pashinyan at the May 27 Cabinet meeting.
The government believes that for most people this will mean almost nothing, but those that own huge mansions and palaces will now have to “pay for their luxury.” “Now people build mansions by the principles of the larger, the more oppressive to the surrounding houses, the better. If this is the prevailing thinking, then they have to be ready to pay for it,” said Pashinyan. Roughly, a real estate owner that currently pays a yearly property tax of 800.000 AMD will now have to pay 15 mln AMD annually. “For people who pay so much to build such palaces, even 15mln annually will not be too much,” said Pashinyan.
The reform is planned to be implemented by 4 phases. The first transition phase will cover 2021, while from then on, the property taxes will increase. The rationale behind the reforms is, among others, zoning of cadaster areas.
By emphasizing taxing luxury mansions, the government, however, does not address the issue of low-income people living in central Yerevan or even not so highly-valued real estate areas upon whom the property tax will be enforced too.
This question was raised back in October 2019 in the Parliament when the cadaster prices were being aligned to market prices and the answer was that certain mitigation tools would be adopted in the 14 months ahead of the full implementation of the reform. Legitimate questions arise that this process may lead to low and middle-income households living in the highly-valued urban zones (normally center) being forced to sell their properties and relocate to less-valued peripheries. The argument that the issue of social injustice of flattening income tax would be resolved by a progressive property tax may turn to be counter-effective in practice. The low and middle-income households (even if they do not live in the center) already bear a higher brunt of taxes as a result of flat income tax, especially under circumstances that excess taxes are increased. Now, these people that have mostly inherited their properties (houses) from the Soviet system and not all of Armenia’s poor are pushed to peripheries by capitalism will carry a new brunt of taxes in the form of high property taxes. This process is set to promote a more accelerated process of gentrification.
These questions, as well as the impact of the new draft regulations on the poor have not be discussed by the Cabinet, while certain MPs, such as Babken Tunyan, head of the Standing Committee on Finance and Economic issues, already promote the changes in their social media pages by justifying the government rationale.
In the meanwhile, the civic initiative fighting against income tax flattening has reacted on their Facebook page that the current property tax changes can in no way be viewed as equivalent to progressive income taxation.
“A progressive property tax is by no means equal to progressive income tax either in terms of social justice or social polarization. A flat income tax widens the income gap allowing for the comparatively high and extremely high-income people to simply accumulate their income as opposed to middle and low-income people. Progressive property taxation will impact only one form of such accumulation, while the accumulated capital does not necessarily have to be kept/invested in real estate, it may be deposited in banks, securities and property abroad… Even if this reform is designed in a flawless manner, it will only partially mitigate the negative impact of flat income taxation,” writes ‘Against Flat Income Tax’ civic initiative.