EBRD Business Support Office Annual Report 2015

0

ANNUAL

REPORT

BUSINESS SUPPORT

OFFICE - ARMENIA

FUNDED BY THE EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT

2017

The report provides

a comprehensive overview of the

Business Support Office Armenia’s

(BSO) activities in 2017 and outlines

the work program for 2018.

It features the summary of activities

carried out, highlights the key facts in

Armenian business environment

development throughout the year and

the BSO’s contribution to those.

Business Support Office-Armenia Annual Report 2017

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I. THE BSO ACTIVITIES IN 2017

Introduction

The Business Support Office (the BSO) has been established by the European Bank

for Reconstruction and Development (EBRD) with the objective of promoting a structured

partnership and constructive policy dialogue between the state and the private sector in

Armenia.

The vision of the BSO is to become an integral and valuable catalyst between the

Government and business community through ensuring an effective dialogue aimed at

improving the country’s business environment and investment climate.

The mission of the BSO is to raise any key issues that affect the business

environment, provide technical assistance to the Government in the process of developing

strategies/reforms to address identified impediments, and, in parallel, facilitate prior

consultations with the business community and transmit feedback on proposed reforms to

the authorities.

The BSO project is funded by the EBRD’s Shareholder Special Fund and submits

reports to the Operation Leader, Head of EBRD’s Resident Office in Yerevan.

Continuous activities in the reporting period

In 2017 in scope of its general functions and regularly carried out activities the BSO has

continued:

Ensuring the effective functioning of the PPD (Public-Private Dialogue) platforms

(Councils) for implementing reforms aimed at improving the business environment

and investment climate

Contributing to the formation of the reform agenda for the Councils (mainly SME

Development Council), ensuring the inclusion of the issues raised by the businesses

at the Council meetings’

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Facilitating policy dialogues with the Private Sector through the organization of

regular meetings with business associations and NGOs: involvement of the latter in

the reform-making process

Overview of available and potential business-related legislative initiatives:

cooperation with the RA Ministry of Economic Development and Investments and

other public bodies involved in developing and considering business- related

legislation.

Initiating raising awareness activities: keeping the business community informed on

the reform processes, enhancing public awareness on the reforms undertaken

through Investment Councils (ICs) the BSO is involved in.

Cooperating with the donors operating in the field of business environment

improvement, sharing and exchanging expertise and information on ongoing

projects.

Monitoring, computing statistics and researching on SME taxation specifics in

Armenia.

Assistance to Investment Councils

In 2017 the BSO continued its participation in four PPD platforms: two high-level ICs,

chaired by the RA Prime Minister, the PPD Council under the RA State Revenue Committee

and the PPD Council RA Ministry of Finance.

The BSO’s support to and inclusion in the mentioned PPD Councils goes as follows:

SME Development Council (SME Council)1

Since its establishment in 2011 the Council has been serving as a recognized platform

for constructive policy dialogue between the business community and the state even in a

broader aspect now, when the Private Sector representation has been enlarged in the

Council. Aimed at identifying, raising and resolving key constraints to the SME sector,

nowadays a broader scope of issues, not only referring to the SME sector but Armenian

businesses in general, has been discussed at the Council. The BSO in cooperation with the

Ministry of Economic Development and Investments has continued day-to-day cooperation

aimed at coordination of work on the Council meeting agenda.

1 http://www.bso.am/what-we-do-2/assistance-to-sme-development-council

Business Support Office-Armenia Annual Report 2017

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As a part of activities directed at implementing and fostering PPD in frames of assistance

to the Council’s work, the BSO has continued arranging regular workgroup meetings with

SME Council’s Private Sector representing members.

Inspection Reform Coordination Council (IRCC)2

The assistance to the inspection reforms has continued since 2010 up to the present

days when the reform is at its final conclusive stage. The BSO has continued providing

legal expertise for inspection system optimization regulatory ongoing stage and continues

its inclusion in the Council meetings and PPD discussions at the highest level between the

Government, the business community and donors.

Public Council of Revenue Policy

Improvement

The BSO has been actively participating in

another PPD platform, established in November,

2016 under the Ministry of Finance, attending all

9 Council meetings organized throughout 2017.

The Council has referred to a number of issues,

including Tax Code policy issues and VAT

application-related issues.

Social Council of Revenue Administration

Reforms

The Council was established in November

2016 and operates under the chairmanship of

the Head of State Revenue Committee

Chairman. The activities of the Council are

focused on the Private Sector’s participation in

the process of tax and customs administration

reforms and in the discussion of economic

issues.

2 http://www.bso.am/assistance-to-ircc

A Session of the Expanded Public Council of Revenue Policy Improvement Took Place

October 5, 2017, minfin.am The Session was attended by representatives from the RA Ministry of Finance, other agencies and famous international consulting organizations involved in the Council with advisory capacity. The session discussed the issues on the delay of the term of entering the RA Tax Code into force for one year, the procedures for calculating tax liabilities occurring during the judicial and extrajudicial seizure of pledged property and during liquidation or bankruptcy, on real estate and vehicle property tax system, and on revenue tax rates review. Source:http://www.minfin.am/en/content/a_session_of_the

_expanded_public_council_of_revenue_policy_improvement_took_place_/#prettyPhoto

Business Support Office-Armenia Annual Report 2017

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The BSO participated in all three Council meetings held in 2017. The Council has so far

discussed issues raised by Private Sector-oriented NGOs and international consulting

organizations involved in the Council, related to VAT taxation, other Tax Code provisions,

new customs platform, etc.

Reporting period summarized

In 2017 3 IRCC meetings, 1 SME Council meeting, 9 meetings of Public Council

of Revenue Policy Improvement and 3 meetings of Social Council of Revenue

Administration Reforms were held. The intervals between each following council meeting

were used for workgroup meetings and discussions of the agenda topics and assignments

with both relevant public bodies and Private Sector.

The SME Council in its enlarged representation discussed a number of heavy topics

during the SME Council meeting, including Tax Code provisions, the most problematic 10

articles for businesses of which were raised at the Council meeting, followed by the Prime

Minister’s assignments for their settlement, including discussions with the RA State

Revenue Committee and the Ministry of Economic Development and Investments.

Throughout the year discussions of many of Tax Code questions were continued in scope

of other PPD platforms the BSO is involved in (Public Council of Revenue Policy

Improvement and Social Council of Revenue Administration Reforms). As a result, there

Clarification of a 3-year violation validity period for fines and other liabilities;

Amendments to the Administrative code: Introduction of a warning prior to fining the

businessmen for delays in tax liabilities or tax reporting;

Introduction of a warning prior to fining for patent fee payers in case of non-

registration of the patent fee

Introduction of a new sector for Turnover Taxpayers: restaurants, public food

venues, etc…

Clarification of the procedure of passing an inheritor’s non-performed liabilities to the

inheritee.

Among other topics on the agenda the necessity of development of leasing as an

alternative financial instrument in Armenia was discussed, as well as the issue on

Business Support Office-Armenia Annual Report 2017

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decriminalization of certain economic crimes, issue on making notifications the first

administrative penalty for delays of tax payment or tax reports submission, as well as other

issues raised onsite by the Private Sector Council members were considered.

Throughout the year the BSO organized meetings with SME Council member NGOs

and business associations, including the networking meeting on introduction of the new

member organizations in extended structure of the Council, followed by workgroup

meetings and regular contacts on Council meeting agenda topics.

In terms of providing assistance to the inspection reforms, the BSO legal consultant

has continued working with the Inspection Reform Unit operating under the Staff of the RA

Government, attended all three Council meetings and worked on providing the legal part

related to the assignments after the Council meetings.

In terms of inspection system optimization progress: 3 more Inspection Bodies have

been established in 2017 (Education Inspection Body, Environmental Protection and

Mining Inspection Body, Health Inspection Body). 3

inspectorates have been eliminated. Improvement of the

RA Law “On Inspection Bodies” draft law on amendments

have been designed and approved by all stakeholders and

is currently awaiting Governmental final approval.

Amendments and changes in sectoral legislation have

been drafted and submitted to the Government for

approval.

On the progress of leasing improvement legislation

elaboration a full package of legal amendments has been

designed in coordination with leasing providers, banks and

other stakeholders. The draft has also been discussed with

the Ministry of Economic Development and Investments,

Ministry of Finance, the RA Central Bank, Ministry of

Justice, introduced at the SME Council. Few final

amendments are added in order to forward the package in

its final form to the Government.

Tax frauds under 4 million AMD to be

decriminalized in Armenia

February 6, 2017, armenpress.am “This means that if until now criminal liability was imposed for tax evasion of 2 million AMD or more, now this benchmark rises to 4 million AMD”, the Minister said noting that the issue has been discussed for over one year in various formats with the representatives of relevant NGOs and SMEs. Source: https://armenpress.am/eng/news/877581/

Business Support Office-Armenia Annual Report 2017

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On the impact of reforms carried out with the assistance of BSO through SME Council:

the Minister of Justice spoke on the amendments of the RA Criminal Code, suggested by

BSO at SME Council and approved by the latter on increase of tax evasion threshold from 2

to 4 million AMD.

Following up the precedent of decriminalization of economic crimes (considered as

crime), the Prime-Minister at the SME Council meeting offered BSO to review the types of

economic crimes of the Criminal code of RA and evaluate which articles can reasonably be

decriminalized. The BSO, based on the international practices, prepared the draft of legal

act, according which four articles are to be removed from Criminal code:

Article 210. Selling goods subject to marking with excise stamps unmarked or not remarked;

Article 211. Breach of rules for marking with excise stamps;

Article 212. point 1, Deception of consumers: the significant amount increased from 500 AMD /⋲1 USD/ to 30 000 AMD /⋲ 60 USD/;

Article 213. Usury.

Regulations of the excise stamps have been removed from the Criminal Code to the

Administrative regulations.

The draft was circulated and passed all instances including the Office of President of

RA and currently is due to be discussed in the Government.

The impact of local fees decrease for SMEs by

making it proportionate to the selling point’s size - a

reform suggested by the BSO and adopted by SME

Council received positive feedback by SMEs:

https://www.youtube.com/watch?v=ruPjbuyn5WM

Out of unplanned issues the BSO initiated

solving in 2017 was the adoption of a relevant change in the RA Administrative Code. The

Administrative Code envisaged, that the legal entity has to pay a penalty for delaying the

term of submission of tax and accounting reports (in most cases 20.000AMD). The change

resulted in introduction of warning as a penalty for minor administrative violations (for

the first violation in the year).

Business Support Office-Armenia Annual Report 2017

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The BSO also settled the issue related to issuing a Certificate of Origin. According to

the public procurement regulations, the participants from EEU countries had to provide the

certificate of origin for every consignment of the provided goods. However, there was no

regulation providing an opportunity for the latter to obtain that certificate. The change

resulted in removing the necessity of providing the certificate of origin for the local

entrepreneurs within public procurement.

Assistance in the Doing Business-Armenia has been continued by the BSO in

cooperation with the Ministry of Economic Development and Investments, mainly aimed at

improvement of positions on Resolving Insolvency, Enforcing Contracts and Protecting

Minority Investors.

There is an ongoing project on strengthening Armenia’s rank on Resolving Insolvency

and restructuring framework, coordinated by the EBRD Legal Transition Team. The project

is aimed identifying the weaknesses of insolvency framework and to provide the Ministry of

Justice and the Ministry of Finance with clear recommendations. The BSO’s assistance was

mainly technical on organizational issues involving governmental bodies, commercial banks

and other stakeholders. The BSO consultants also provided several recommendations on

the final reports of international and local experts.

BSO’s has continued assistance in the implementation of the RA Law “On state

support to IT sector” attending certification

committee meetings. In total 272 certificates have

been provided and what is interesting in 2016

there were only 98 certified IT startups, there is a

177% increase of the number of certified

startups in a year. According to the data

provided by the RA Ministry of Transport and

Communication and IT, curating the reform on the

public part, as of 2017 there are 3150 jobs

provided by all the operating certified IT startups

with 3.0-3.4 million AMD annual salary in

average.

Armenian cheese makers 'trapped' VAT frustrates them

April 7, 2017, news.am Director of the Armenian Cheese Producers' Union Armen Gigoyan clarifies: “The food of the villagers (including milk) is exempt from VAT. However, VAT is also charged for finished goods. And it is not possible to refund it. We do not give up taxes, we just offer them to redistribute them equally," says Gigoyan. Such a proposal has already been made by the Union, consulting with international financial institutions, the EBRD-funded Business Support Office as well as the IFC. The proposed principle is: not to charge VAT on milk, but only processing. Source: https://news.am/arm/news/383366.html

Business Support Office-Armenia Annual Report 2017

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The issue of the VAT refund arising in cases of provision of agricultural goods to

retailers/supermarkets by SMEs remains vital for businesses. In 2017 working group

meetings have been held with the relevant NGOs and Ministry of Finance and Ministry of

Economic Development and Investments. VAT decreased rate for agricultural processed

products is under discussion and the BSO is considering to continue working towards the

settlement of this issue in 2018.

Fruitful results were

obtained in course of

workgroup meetings on

social entrepreneurship

development in Armenia.

For the first time, sector

representatives, the

Association of Social

Enterprises of Armenia and

relevant NGOs and

stakeholders were united by BSO to bring out ideas and key challenges for Social

entrepreneurship development Concept paper elaboration.

Following-up the tradition from previous

years to refer SME statistics, the BSO

consultants conducted Research on SME

Taxation field3 summarizing the preceding year

based on official data and public information

acquired from state bodies combined with short

analysis of the picture.

The research distinguished and

emphasized the importance of considering Active taxpayers as a basis for statistics.

According to the State Registry at the end of 2016 there were about 171 000 registered

3 http://www.bso.am/wp-content/uploads/2017/12/Research-On-SME-Taxation-Field-2016.pdf

71%

4% 1%

24%

Micro

Small

Medium

Other active taxpayers

81%

69%

69%

67%

61%

36% Work Integration of Socially orEconomically Disadvantaged Groups

Rural Development

Involvement of Disabled People

Pro-environment

Innovation

Engagement of Youth

The future vision of Social Enterprises: (extract from the survey)

SMEs in Active Taxpayers

Business Support Office-Armenia Annual Report 2017

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taxpayer entities, out of which only 101 003 (or 59%) comprise the Active taxpayers. At

the same time, the number of active taxpayers in 2016 has increased by 9 739 compared to

the previous year.

Thus, SMEs account for 76% of Active

taxpayers in Armenia. It was calculated, that

SMEs provide an average of 33% of the

country’s GDP. In 2016 SMEs also provided 238

311 jobs which comprises 64.3% of total jobs in

the private sector for the given year, where 72 188

micro businesses provide 116 722 jobs (or 31.5%

of total number of employees in the private

sector), 4030 small businesses create 60 273

work places (or 16.2% of total number of

employees in the private sector), 945 medium

businesses open up 61 316 work places (or 16.9% of total number of employees). The vast

majority of the SMEs, 51.8%, are located in Yerevan, the adjacent regions of Kotayk –

7.5%, Ararat – 6.3%, Armavir – 6.4%. In 2016, 59% of SMEs were engaged in trade,

51.8% operate in Yerevan.

As for structural organization of the SMEs in Armenia: it is not diversified with the main

area of SMEs activities being retail and wholesale trade. The number of SMEs registered in

the trade sector in 2016 amounts to 45 643 entities, with 96.4% being concentrated

amongst micro-sized enterprises. In comparison with 2015, in 2016 the number of micro

businesses in the trade sector has grown by 9124 (or 26.1%).

In line with the new regulations on the IT

start-ups, family and borderline businesses (the

first two of which have been adopted through SME

Council with contribution of BSO), in 2016 2536

entities falling in one of those categories received

exemption of the taxes and have been working

under the privileged status, overall covering 2.51%

of all SMEs.

Number of SMEs in regions by size

SMEs in accordance with tax regime

813 170 1553

51027

47440

Borderlinebusinesses

IT certified start-ups

Familybusinesses

0

5000

10000

15000

20000

25000

30000

35000

40000

Yere

van

Ara

gats

otn

Ara

rat

Arm

avir

Geg

har

kun

ik

Lori

Kota

yk

Shir

ak

Syu

nik

Vay

ots

Dzo

r

Tavu

sh

Micro Small Medium

Business Support Office-Armenia Annual Report 2017

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At the same time, turnover tax payers

totaling 51 027 entities comprise 50.5% of the

operating SMEs.

The research shows, that since 2014,

number of SMEs has been increasing in

average by 3%. In 2016, the tax payments by

the SMEs have decreased by 22%.

Receiving many inquiries and concerns

from Armenian businesses on import

procedures and specifics of customs clearance

procedures, the BSO decided to dig deeper into the issue. In frames of the BSO survey

related to collecting feedback on import procedures meeting with businessmen has been

carried out in three market areas in Yerevan. A work group meeting was held on the 23rd

of

May involving around 20 importers and representatives from the State Revenue Committee.

As a result 12 major obstacles have been identified which have been forwarded to the State

Revenue Committee for final discussions and joint work on the recommendations to solve

those. An electronic study was made by the PR Consultant and BSO’s interns and based on

the result a short survey- “Import Procedures in Armenia” was conducted.4

In frames of developing social entrepreneurship in Armenian, the BSO carried out an

electronic survey among businesses to understand the perceptions of the specifics of the

sector and their needs in terms of legislative regulation. This was followed by BSO

organizing a roundtable discussion in August with the stakeholders affiliated to social

entrepreneurship in Armenia (with participation of Social Entrepreneurship Association in

Armenia more than 25 organizations, NGOs and social enterprises)5. The progress on the

project implementation continued throughout the year in a workgroup format6 aimed at

development of a draft project “Social entrepreneurship development concept paper”.

4 http://www.bso.am/wp-content/uploads/2017/07/Import-procedures-in-Armenia.-EBRD-BSO-newsletter-1.pdf

5 http://www.bso.am/bso-initiated-a-meeting-with-social-enterprises-in-armenia-to-discuss-the-perspectives-of-the-

sector-development 6 http://www.bso.am/social-entrepreneruship-development-workgroup-continues-developing-the-concept-paper-for-

the-sector

5.4%

8.4%

10.4%

75.8%

Micro Small Medium Other taxpayers

SMEs in tax revenues

Business Support Office-Armenia Annual Report 2017

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On May 5 the Head of BSO was invited to a press conference together with representatives

from the Ministry of Finance and SME Cooperation Association commenting on the role of

SMEs in tax system on Armenia, existing challenges, reference prices and documentation.

The BSO Head and consultants gave interviews:

- On tax regimes and BSO reforms

https://www.youtube.com/watch?v=Oj7O8B77hlQ&spfreload=10

- On IT law impact and privileges extended)

-On introducing the BSO’s SME Taxation Research

As a part of raising awareness visits to the regions of Armenia, the BSO consultants in

cooperation with the SME Development National Center of Armenia visited businessmen in

Vanadzor7 and Vayq

8. The consultants’ team introduced the latest changes in business-

related legislation, amendments to the Tax Code, discussed issues under consideration of

the SME Development Council.

In frames of RA Prime Minister's Award “Best Woman Entrepreneur 2017” the

BSO participated and awarded two businesswomen (from Yerevan and one region).

There have also been introductory meetings with startups, potential entrepreneurs and

students: a meeting with Russian-Armenian State University students and introduction of

the specifics of the Armenian legislation for startups and BSO activities. a lecture on tax

regimes for startups during Sevan Startup summit.

Raising awareness notifications on important changes in legislation, information and

upcoming reform projects have been distributed to businesses by Facebook, e-mailing and

website.

The year was active in terms of work with media mostly in all the directions of the

reforms implemented, as well as on commenting the actual situation on the topics of

interests of the businesses at the given point. The BSO delivered information on updates

and the impact of the reform for IT sector startups.

7 http://www.bso.am/raising-awareness-meeting-with-businesses-in-vanadzor

8 http://www.bso.am/regional-meetings-with-businessmen-continue-bso-visits-vayq

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Highly appreciating the importance of economic journalism and the effective

cooperation with the media, The BSO has thought of annually awarding one journalist best

covering the activities of BSO in the given year. In 2017 the Head of BSO presented a

certificate of appreciation to the Banks.am news agency journalist Siranush Simonyan for

the coverage of activities of the BSO with high professionalism. The BSO will continue to

encourage and appreciate the professional activities of economic journalists who cover

important issues for the business community including business- oriented reforms and

legislative changes.9

The BSO followed-up and responded to the

questions of businesses online (inquiries sent through

website and comments) on the reforms carried out, in

particular Family Entrepreneurship regime-related

inquiries. Altogether the provided consultations on

family business, including personal visits to the office,

phone calls, online consultations and e-mails numbered

74 in 2017.

Information leaflets and notifications on major

reforms, changes and urgent notifications have been

prepared and circulated to businesses electronically and

on FB page, as in case of information on dual-use

products’ permission.

The BSO has continued monthly posting of business-related events (including the

events organized by partner organizations, NGOs, Council member associations etc.), as

well as trainings, workshops, meeting and even important deadlines (for filing tax reports)

on Business Event Calendar10

available on the BSO website.

9 http://www.bso.am/the-bso-presents-a-certificate-of-appreciation-to-banks-am-journalis

10http://www.bso.am/events

Business Support Office-Armenia Annual Report 2017

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Apart from introducing success stories of

small businesses the BSO has worked with, this

year the introduction of social enterprises of

Armenia operating mainly in regions, and the

importance of their activities and social impact

was presented in a new rubric on BSO website

entitled “Social Entrepreneurship-more than just

business”.

Another spark of the year was added by

the presence of 4 interns at the BSO: from Belgium (The Institut Des Hautes Etudes Des

Communications Sociales), 2 students from the United States (Yale University and

University of Miami accordingly), and Armenia (American University of Armenia). Apart from

learning how the BSO arranges Public-

Private Dialogue and what the specifics of

the Armenian business community and

challenges are, the interns had their

contribution in ongoing projects and

helped a lot with organizing the surveys for

importing businesses in trade areas, as

well as online platform survey for importing businesses carried out, and analysis and

structuring of the information obtained though surveys and meetings.

The BSO activities aimed at addressing and solving SME problems did not remain

unnoticed by partner NGOs. SME Cooperation Association during its annual meeting

awarded BSO for timely addressing and effectively solving SME issues.

Throughout the year BSO participated in the conferences, seminars and events

organized by partner-organizations and NGOs (European Business Association11

, SME

Cooperation Association, Republican Union of Employers12

, etc).

11

http://www.bso.am/the-bso-took-part-in-round-table-discussion-to-raise-awareness-and-the-main-impediments-of-

the-new-tax-code 12

http://www.bso.am/the-head-of-bso-speaks-on-the-necessity-of-developing-social-enterprises-in-armenia

Business Support Office-Armenia Annual Report 2017

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The BSO 2017 year in a review is summarized on the BSO’s YouTube channel:

https://www.youtube.com/watch?v=Oh60y8Aya1c&feature=youtu.be&app=desktop

Progress on achievements: result indicators

Below are the targeted reform areas in accordance with the preliminary Action Plan for

2017. The table introduces their progress on achievement and current status:

TARGETED REFORM AREAS

STATUS RESULT INDICATORS

COMMENTS

Leasing improvement legislation elaboration

Met 1. Amendments to the RA Civil Code approved-24

2. Amendments to the RA Tax Code approved-17

A full package of legal amendments has been designed in coordination with leasing providers, banks and other stakeholders. The draft have also been discussed with the Ministry of Economy, Ministry of Finance, the RA Central Bank and introduced at the SME Coordination Council. Currently the package is being circulated for the final assessment in order to be introduced in its final form to the Government.

Study on the issue of the VAT refund arising in cases of provision of agricultural goods to retailers/supermarkets by SMEs

Not Met 1.Number of meetings and discussions with Stakeholders - 7 2. Number of the recommendations for the issue settlement - 0

The issue was presented at the Public Council of Revenue Policy Improvement in the Ministry of Finance and it was decided to form a working group and draft the legal amendments that would decrease the VAT for Agriproducts processors. But because of the high level of busyness the working group was not formed.

Study of social Met 1.Number of countries 1. Experience on social entrepreneurship

Business Support Office-Armenia Annual Report 2017

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entrepreneurship international experience with a purpose of identification of its role in the Armenian business environment realities

examined -22 2. Concept paper on Social Entrepreneurship Development in Armenia drafted

regulations and development specifics for 22 countries have been examined with primary focus on Italy, Lithuania, Czech Republic. 2. Working group has been created comprising Social Entrepreneurs in Armenia to discuss the problems existing in the sector and develop the concept paper on Social Entrepreneurship development in Armenia. Overall 6 meetings with the working group took place. As a result, concept paper was drafted covering the problems existing in the sector and recommendations on how to overcome the latter. The concept paper is set to be presented to the Government of Armenia in the year of 2018.

Continue the assistance in the implementation of the RA Law “On state support to IT sector”.

Met 1. 280 applied startups 2. 272 registered startups/ provided certificates 3. Overall 3150 new jobs opened (2475 jobs only in 2017)

In comparison with 2016, when the number of new jobs provided by the certified startups was 412, in 2017 the number of jobs reached 2475.

Strengthening the Armenian Chamber of Commerce’s role as a business-oriented structure and improvement of its services

Not Met Study with a recommendations plan is prepared based on the international experience Initial talks with the Armenian Chamber of Commerce and Industry are launched.

3 EU countries France, Germany and Italy have been studied as good practices and report is prepared based on the international experience which was discussed with the Armenian representatives of those countries’ chamber of commerce. This is planned to be developed and

Business Support Office-Armenia Annual Report 2017

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progressed in 2018.

Assistance in the Doing Business-Armenia

Met Doing Business rank: 47 Increase in rank of Resolving Insolvency + 0.08 in DTF Overall Increase + 0.59 in DTF 2 recommendations on

Protecting minority investors submitted to the Ministry of Economic Development and Investments

As the main work has been concentrated on Tax Code and its enactment (Jan 1 2018) - increase in Doing Business ranking increase is expected in the following year.

Business Ombudsman establishment

Not met

A new draft was circulated by the Ministry of Justice, but the Human Rights Ombudsman raised a problem saying that according to the constitution no other ombudsman can be established. Several meetings have been held on this but the fact is that the process is frozen yet.

Continuous work on RA Tax Code improvement and clarification of its provisions

Met 1. Recommendations provided- 12 2. Recommendations adopted- 5

12 recommendations have been provided to the Ministry of Finance through the SME council and Public Council of Revenue Policy Improvement 5 out of which have been adopted.

Research and recommendations on problems businesses face at the customs border

Met 1. Issues and problems identified from importers- 12 2. Recommendations submitted to State Revenue Committee- 12 3. Import Procedures in Armenia 2017

13 research-

based newsletter distributed to relevant state bodies and available on BSO website.

In frames of the BSO survey related to collecting feedback on import procedures meeting with businessmen has been carried out in 3 market areas in Yerevan. An electronic study on import procedure and timing was made by PR and interns. A work group meeting

13

http://www.bso.am/wp-content/uploads/2017/07/Import-procedures-in-Armenia.-EBRD-BSO-newsletter-1.pdf

Business Support Office-Armenia Annual Report 2017

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was held on the 23rd of May involving around 20 importers and representatives from the State Revenue Committee. As a result 12 major obstacles have been identified which are sent to the State Revenue Committee for final discussions and joint work on the recommendations to solve those obstacles.

Business Incubator establishment

Partly met

Launch of the pilot program – March 2018

The pilot project that is aimed at the creating a business incubator for the integration of Syrian-Armenians and Local Start-ups has received an EU financing through the “Increased resilience of Syrian Armenians and host population” program. It will be implemented by the Armenian Caritas, Armenian Red Cross and SME cooperation Association.

Study on decriminalization of economic crimes and preparation of recommendations of relevant mechanisms in the RA Criminal Code

Met 1.Examined countries for international practice -10 2. Recommendations submitted-7 out of which 4 Articles to be removed from the Criminal Code.

The fact that the BSO raised the issue of Article 205 of the Criminal Code previously, the Prime Minister at the SME Council meeting assigned to look deeper into other articles to be decriminalized and cooperate with the Ministry of Justice and the SRC.

Clarification of the procedure for issuing the permission for exporting dual-use goods

Met Meetings with organizations providing the permission have been organized on terms of provision. The procedure of issuing the permission is clarified and there has been raising awareness- a

The leaflet on issuing permission for exporting dual-use goods is available on website and Facebook page. It clarifies the legal requirements on terms and amount charged, focusing on

Business Support Office-Armenia Annual Report 2017

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leaflet prepared and disseminated among businesses.

avoiding any corruption risks and informing about other important details on permission acquisition.

Support the implementation of PPP and Resolving Insolvency reforms

Met 4 recommendations Organizing meetings with 19 stakeholders: Ministries, Judges, Central Bank RA, Commercial banks, Bankruptcy officers, KPMG. Participation on the 10 meetings

Double payment of profit tax elimination for taxpayers in case of ordering electronic services from non-residents (e.g. Facebook ads, checkout services etc.)

Not met A draft law amendments were prepared but the relevant ministries did not agree with the solution. This has to be re-discussed and revised by proposing a consensus that will be acceptable by the state bodies.

Continue raising awareness activities, meetings with SMEs in RA regions and Yerevan, meetings with NGOs and business associations, networking and e-communication, etc.

Met 1. Meetings with SMEs in Yerevan- 11

2. Meetings with SMEs in regions - 7 3. Meetings with NGOs

and business associations-13

Additional actions: 1 press conference on

May 5 on the role of SMEs in tax system on Armenia

3 interviews organized (Tax regimes and BSO reforms, IT law impact and privileges extended-SME Taxation Research)

1 meeting with Russian- Armenian University students and introduction of the specifics of the Armenian legislation for startups and BSO activities on May 15.

1 lecture on tax regimes for startups during Sevan Startup summit.

3 Meetings with SME Council member NGOs and business associations have been organized, including the networking meeting

Business Support Office-Armenia Annual Report 2017

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on introduction of the new member organizations in extended structure of the Council.

Raising awareness notifications on important changes in legislation, information and upcoming reform projects distributed to businesses by Facebook, e-mailing, website.

Follow-up and responding to the questions of businesses online on the reforms carried out, in particular Family Entrepreneurship regime-related inquiries.

Inspection system optimization finalization

Met 1. 3 Inspection Bodies have been established: -Heath Inspection Body -Environmental protection and Mining Inspection body -Education Inspection Body 2. 1 Inspection has been eliminated (Agricultural Technics Inspection) 2 Inspectorates have been merged (Environmental Inspectorate and Mining Inspectorate).

Improvement of the RA Law “On Inspection Bodies”

Met Adoption of the proposed changes in the law.

Adoption of new Law “On inspections”

Not met Adoption of the law 1. Decrease of the

procedures formerly carried out as an inspection

2. Decrease of number of

Business Support Office-Armenia Annual Report 2017

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the non-planned inspections 3. Decrease in number of

inspected businesses appealed for the procedural violations

Establishment of new procedures for Market Surveillance and general safety

Not met Adoption of laws “On general safety of non-food products” and “On market surveillance”

Assist in raising awareness on inspection reforms among the businesses

Met 6 meetings with businesses in RA regions

Armenia: Doing Business 2018 factsheet

Rank In Doing Business 2018: 47

Overall Increase

+ 0.59 in DTF

Resolving Insolvency

+ 0.08 in DTF

Business Support Office-Armenia Annual Report 2017

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BSO participation in 4 High-level Councils’ meetings, chaired by the

Prime-Minister14.

BSO involvement in other PPD boards: 9 meetings of Public Council of

Revenue Policy Improvement, 3 meetings of Social Council of Revenue

Administration Reforms.

Research on SME Taxation Field 15 elaboration.

Survey on Import Procedures in Armenia elaboration.16

Survey on Social entrepreneurship development in Armenia elaboration.

A full package of legal amendments for leasing development designed

with 24 amendments to the Civil Code and 17 amendments to the Tax

Code.

Decriminalization of 4 Articles to be removed from the RA Criminal Code.

Adoption of BSO suggested 5 amendments to the Tax Code

Clarification of a 3-year violation validity period for fines and other

liabilities.

Amendments to the Administrative code: Introduction of a warning prior to

fining the businessmen for delays in tax liabilities or tax reporting.

Introduction of a warning prior to fining for patent fee payers in case of

non-registration of the patent fee.

Introduction of a new sector for Turnover Taxpayers: restaurants, public

food venues, etc.

Clarification of the procedure of passing an inheritor’s non-performed

liabilities to the inheritee.

Continuous assistance in implementation of the RA Law “On state

support to IT sector” and startups certification: 16 Certification Committee

Board meetings; legal assistance: 48 consultative meetings with IT

startups.

74 consultations provided on family business

Raising awareness meetings held in regions of Armenia.

3 inspection bodies established.

Quality assurance units operated in inspection bodies as a new format

assessment of the inspection bodies’ activities.

Cash control machine check adopted as an expenditure document.

14

Detailed information on Councils’ meetings is available on www.bso.am 15

http://www.bso.am/wp-content/uploads/2017/12/Research-On-SME-

Taxation-Field-2016.pdf 16

http://www.bso.am/wp-content/uploads/2017/07/Import-procedures-in-

Armenia.-EBRD-BSO-newsletter-1.pdf

Inspection Bodies

established 3

274 APPLIED

272 CERTIFIED

4 articles on

economic crimes approved to be

Decriminalized

Recommendations to the

Tax Code

5 out of

12 adopted

T

2475

NEW JOBS

RAISINGawareness

meetings with over 150

businesses in regions

STARTUPS

Achievements at a glance

Turnover

taxpayers

Restaurants

and cafes

WARNING

BEFORE

PENALTY !

EBRD Business Support Office Annual Report 2015

19

Research: Active tax payers are only 57%

of SMEs December 18, 2017,banks.am

…Business Support Office is implementing this analysis for the third consecutive year. The latter aims to present comprehensive information on the role of SMEs in Armenia's economic development. Source: http://www.banks.am/am/news/interviews/14854

Press highlights: excerpts from news

Armenia’s Best Female Entrepreneurs 2017 are

known March 16, 2017, banks.am “I wish you to never get tired and to always stay beautiful, smiling, energetic, and enthusiastic, and to spread tolerance and culture in the business sphere,” said Armenian Prime Minister Karen Karapetyan. Encouragement prizes were handed to winners of “The Best Female Entrepreneur 2017” by international organizations as well, such as USAID, GIZ, UNIDO, UNFPA, UNHCR, EBRD ASB, EBRD’s BSO, AWAY, AUA and CARITAS. Source: http://www.banks.am/en/news/newsfeed/13514/

SRC presented plans for the second stage of tax and customs reforms

June 19, 2017, news.am

The action plan for the second stage of tax and customs reforms was presented. In the area of reduction and prevention of shadow turnover, it is planned to apply the procedure of “tax warehouse” to carry out proper control over imports from EAEU countries. Source:http://taxservice.am/MD_News.aspx?ntname=MDOfficialNews&nid=3461

Armenia PM discusses inspection reforms

February 10, 2017, news.am

The draft amendments to the Law “On Inspection Agencies” were also discussed. The changes are expected to raise the independence of inspection and quality improvement systems. Apart from this, reference was made to the liquidation of a number of inspection agencies and creation of new ones. Source: https://news.am/eng/news/372707.html

SMEs positively assess recent developments in patent fees

July 14, 2017, banks.am

…Gevork Poghosyan highly appreciated the Prime Minister's instruction, noting that increasing the maximum threshold for the use of a patent fee was a favorable step for the sector's organizations. According to him, the SME representation bodies have raised the issue of decreasing the license threshold on the problem of SME Development Council meeting held on July 7, which may have been an incentive for the Prime Minister's instruction. Source: http://www.banks.am/am/news/newsfeed/14118

Business Support Office-Armenia Annual Report 2017

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II. THE BSO WORK PROGRAM FOR 2018

Summary

In 2018 the BSO is outlining potential reform agenda prioritizing the feedback on

scope of concerns the businesses have in Armenia. A valuable input in receiving problems

from the business community is made by means of regular interactions with Private Sector

representation of the SME Council also as a result of meetings with businessmen in

Yerevan and regions. The problems are mainly related to tax legislation gaps and tax

administration application, customs procedures and improper application of regulations.

New projects and initiatives described below are also in store for implementation in 2018.

The BSO is also going to continue particular projects planned or launched in 2017.

The BSO is planning to continue suggesting improvements in the RA Tax Code and

working towards suggesting acceptable business- oriented solutions to particular articles of

the Code.

Substantial support and cooperation from the Government on the project of

developing social entrepreneurship in Armenia is expected after introduction of the Concert

paper, developed by the BSO in cooperation with the sector representatives. Upon having

formed a unified perception of social entrepreneurship, practical steps on the social

enterprises’ inclusion into state programs (and not only) are expected.

Leasing legislation improvement package adoption will bring to tangible results in

terms of leasing as a financial product development in Armenia. Raising awareness

activities in terms of introducing the pluses of leasing to businessmen are planned.

Having reached consent from Armenian Chamber of Commerce to cooperate, based

on the BSO’s study plan aimed at strengthening the Chamber’s role as a business-oriented

structure and improving its services, as well as the willingness of the Chamber to cooperate

implementation stage is planned for 2018.

The pilot project of Business Incubator, aimed at the creating a business incubator for

the integration of Syrian-Armenians and Local Start-ups upon receiving an EU financing

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through the “Increased resilience of Syrian Armenians and host population” program is

planned to be launched in March 2018.

In terms of Inspection Reform, full completion of the inspection system optimization

with 6 inspection bodies operating is planned for 2018.

Raising awareness activities will be continuously implemented, based on the

deliverables of Councils’ meetings, new reforms adopted focusing on delivering important

and timely information to businesses in Yerevan and regions.

Targeted reform areas: result indicators

Below are the main reform areas that the BSO preliminarily identified to be addressed

in 2018, accompanied by their result indicators, that would state and measure the impact of

the reform. The number of the reforms that will actually be undertaken throughout the year

shall not be limited to the listed below, as far as in course of work new initiatives, regulatory

changes and reform projects are expected to be raised by businesses. Often addressing

new issues depends on the business environment tendencies and occurring needs in that

particular period of time.

TARGETED REFORM AREAS RESULT INDICATORS

Simplification of Food imports and exports

Number of recommendations included in the relevant Gov. decree

Adoption of the relevant amendment making in the Governmental Decree.

Simplification of procedure of liquidation of non-operating companies.

Adoption of the relevant amendment in the RA Civil Code and in the RA Law “On registration of legal entities”

Decreased number of registered but not operating companies

Elimination of irrational requirements for Cash Control Machine checks and penalties

Adoption of the relevant Governmental Decree.

Reconsideration of Cash control registers’ price and purchase process

Adoption of the relevant Governmental Decree. Decrease of the price of Cash Control Machine

Exemption from dividend tax payment obligation for Family entrepreneurship shareholders

Adoption of the relevant amendment in the RA Tax Code.

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Import and export procedure improvement

1. Number of issues adopted by the State Revenue Committee (SRC) from the list of problems revealed by importing businesses and forwarded by the BSO to SRC

2.Adoption of the relevant improvement in the customs clearance procedures

Introduction of a simplified taxation regime for small volume winemakers (mostly family-run)

Adoption of the relevant amendment in the RA Tax Code.

Strengthening the Armenian Chamber of Commerce’s role as a business-oriented structure and improvement of its services

Number of incorporated recommendations provided by the BSO

Continue the assistance in proper implementation of leasing development legislative package

1. Number of amendments to the RA Civil Code approved

2. Number of amendments to the RA Tax Code approved

Review of the VAT rate for agricultural products processors

1.Number of meetings and discussions with stakeholders 2. Number of the recommendations for the issue settlement

Initiation of Social Entrepreneurship Development Concept and launching its enactment

1.Introduction of a concept paper on Social entrepreneurship development in Armenia 2.Number of actions and recommendations, envisaged in the Concept, adopted 3. Adoption of the concept on Social entrepreneurship development in Armenia

Assist in prolongation and future implementation of the RA Law “On state support to IT sector”.

1. Number of prolonged years 2. Number of applied startups 3. Number of registered startups/ provided certificates 4. Number of new jobs opened

Continuous work on RA Tax Code improvement and clarification of its provisions

1. Number of recommendations provided 2. Number of recommendations adopted

Restart the discussions on Business Ombudsman establishment

1. Number of discussions 2. Number of involved stakeholders

Assistance in the Doing Business-Armenia

1. Progress in Doing Business: 2. Progress in Resolving Insolvency 3. Progress in Protecting Minority Investors 3. Number of recommendations submitted to the Ministry of Economic Development and Investments

Business Incubator establishment in cooperation with Armenian Caritas and SME Cooperation Association

Launch of the Business Incubator 3 year program for Syrian Armenian and local start-ups and SMEs

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Double payment of profit tax elimination for taxpayers in case of ordering electronic services from non-residents (e.g. Facebook ads, checkout services etc.)

Adoption of the relevant amendment in the RA Tax Code

Developing tutorials on detailed business establishment and operation regulations and step-by-step procedures under given tax regimes

Number of tutorials prepared

Research best international practice on textile industry development mechanisms and their application to the Armenian context

Number of the recommendations provided to the Government of Armenia

Continue raising awareness activities, meetings with SMEs in RA regions and Yerevan, meetings with NGOs and business associations, networking, e-communication, etc.

1. Number of meetings with SMEs organized in Yerevan

2. Number of meetings in the RA regions 3. Number of meetings with NGOs and

business associations 4. Other details on activities throughout the

reporting period.

Inspection system optimization finalization

1. Establishment of 2 new inspection bodies (with an ultimate aim to have 6 overall) 2. Decrease of the number of acting inspectorates: - Number of eliminated inspectorates - Number of inspectorates merged

Improvement of the RA Law “On Inspection Bodies”

Number of recommendations Adoption of the Amendments

Adoption of new Law “On inspections” 1. Number of principles introduced for conducting the inspection.

2. Number of clear procedures for inspections

Adoption of the package of laws on market surveillance

Adoption of the relevant two laws regulating market surveillance

Drafting functions for inspection bodies 1. Number of amendments drafted in the relevant sectoral laws

2.Number of amendments adopted in the relevant sectoral laws

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Cooperation with IFIs and donor organizations

In the reporting period the BSO has been continuing stable cooperation with a number

of donor organizations aimed at both exchanging experience and ideas on business

environment development-oriented new and ongoing initiatives and projects, and, in

particular cases, implementing joint projects.

As a consequence of enlargement of the Private Sector representation in the SME

Council the Support to SME Development in Armenia (SMEDA) program, supported by the

EU and GIZ, has become a member of the Council.

In frames of Business Incubator establishment, cooperation with the EU has played a

key role for enabling the prerequisites for pilot project.

Cooperation with UNECE on a common project related to carrying out a

comprehensive survey among trade-area businesses in Armenia.

Continuous cooperation on business-environment development topics has been

ensured with EU Delegation in Armenia and OECD.

The cooperation with the Embassy of the United States in Armenia was marked in

terms of joint discussions on the consequences of elimination of Labour inspectorate and

labour rights protection mechanisms in Armenia

Interactions with USAID, UNIDO and a number of other donor organizations have

taken place in course of involvement in the voting committee and participation at the Prime

Minister’s Best Woman Entrepreneurship Award 2017.

Cooperation with UN was marked on social entrepreneurship and with AGBU on

social entrepreneurship and strengthening cooperation with NGOs and business

associations.

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Conclusion

In 2018 the BSO continued providing assistance to SME Development Council, the

Inspection Reform Coordination Council, as well as actively participating in meetings of the

Public Council of Revenue Policy Improvement and Social Council of Revenue

Administration Reforms thus ensuring the effective PPD aimed at raising and discussing

actual problems that businesses face.

The BSO, in course of its proactive approach to timely tackle business community

problems and suggest legislation improvements that are acceptable and effective for all

stakeholders, both Public and Private, has gained a status and recognition as a trusted

mediator between the Armenian businesses and the Government.

Continuously in 2018, the BSO is planning to direct its activities at business-related

legislation and procedures improvement, come up with new initiatives.

More information on the SME Council and IRCC meetings (and meeting minutes) is

available on the BSO website:

http://www.bso.am/what-we-do-2/assistance-to-sme-development-council/sme-development-council-meetings/

http://www.bso.am/assistance-to-ircc/ircc-sessions/

All the BSO news available here:

http://www.bso.am/category/news

BSO Armenia Facebook page:

https://www.youtube.com/channel/UCpD0Kap4MBdUY2MW84Uel6A?nohtml5=False

BSO Armenia YouTube channel:

https://www.facebook.com/BSO.Armenia/

For more information, please visit the BSO website:

http://www.bso.am