Rising prices and changing taxes have sparked unrest in Armenia

5 February 2018
Hundreds march in Yerevan against recent price hikes. (/Hetq)

The beginning of 2018 has come to mean two things for Armenians: rising prices for essential goods, and for many, a new tax burden. The opposition Yelk are now confronting the government, encouraging Armenians to take their anger to the streets.

Fifty-two-year-old Yerevan resident Aida Martirosyan complains that her family’s already low earnings have suffered a blow from rising prices.

‘In just a month, the price per kilogramme of butter has gone up from ֏2,800 ($6) to ֏5,000 ($10). The prices for cheese and meat have gone up. Soon they will start selling alcohol and cigarettes at a new price. The prices for medicines have increased, and I’m not even going to start on the increase in petrol and gas prices. Because of the rise in fuel prices, other products will soon get more expensive as well’, Martirosyan says.

While official statistics put inflation at just 2.6%, they show that the prices of many essential goods have risen substantially since 2016. The price of butter rose 40%, pork by more than 35%, lamb by 30%, beef by 17%, and cheese by 12%.

Nelli Petrosyan, a store manager in Yerevan, says that people try to choose the cheaper products, and now often buy food not in kilogrammes, but in grammes, checking how much money they have in their wallet.

‘Some days we don’t sell even a single chicken. people buy 150–200 grammes of biscuits. Of course, there are products for which the prices have fallen: buckwheat, peas, or lentils — but people don’t buy these products every day’, Petrosyan says.

The minimum wage no longer enough to survive

Experts in food safety warn that Armenia’s  score in the food safety index, which measures people’s access to food, has decreased. Chairman of the Informed and Protected Consumer organisation Babken Pipoyan says the minimum wage is no longer enough to buy essential goods. This means that citizens will prefer low-quality calories, since not everyone can buy butter for ֏5,000 ($10) or meat for ֏3,000 ($6).

[Read about malnutrition in neighbouring Georgia on OC Media: Hidden hunger: Georgia’s creeping epidemic]

Melita Hakobyan, head of consumer rights watchdog the National Association of Consumers, says that ‘in a country as poor as Armenia, where 30% of the population is below the poverty line, it’s not feasible to conduct [inflation] calculations. It’s necessary to calculate everything in such a way that basic necessities are accessible to everyone, and not to declare that “the poor do not eat meat anyway” ’.

This was a reference to comments from several deputies from the ruling Republican Party. On 8 December, Hakob Hakobyan, who leads the parliamentary commission for social questions, told a newspaper that since the poor spend less, price rises would hit them less. Another Republican deputy, Khosrov Harutyunyan, went even further and declared that ‘if a family consumes only potatoes, the increase in meat prices would not affect them’.

But the official statistics themselves speak to the absurdity of such words. According to the latest data of the National Statistics Service, the minimum monthly consumer basket in the third quarter of 2017 costed ֏55,591 ($116). At the same time, the monthly minimum wage in Armenia was last increased on 1 July 2015, to ֏55,000 ($113).

New excise duties and income taxes

Along with many other products, prices for petrol, liquefied natural gas, and diesel fuel have also risen. The reason for this is the introduction on 1 January 2018 of new excise taxes under the new Tax Code.

The excise tax on a tonne of petrol rose from ֏25,000 ($52) to ֏40,000 ($83), and for liquefied natural gas from ֏8,300 ($18) to ֏25,000 ($25) per 1,000 cubic metres. Despite taxes on diesel fuel decreasing, value added tax was added to it, increasing the cost of diesel from ֏380 ($0.80) by ֏60 drams ($0.12).

Taxes on alcohol and cigarettes have also increased since 1 January — from 63% to 73%.

Meanwhile the new Tax Code has shaken up income tax rates, increasing the rates on middle income earners, though those earning the least have seen their tax bills decrease.

Income tax on salaries over ֏150,000 ($312) per month increased by 2% — to 28%. While the tax on salaries lower than ֏150,000 ($312), decreased to 23%. Employees with a salary of more than ֏2 million ($4,160) will continue paying the top rate of 36%.

Economist Vahagn Khachatryan, a former parliamentarian and former presidential advisor, says that the income tax rise is equivalent to robbery. ‘In fact, it’s clear that in 2018, citizens will start living worse. And in a country where, according to official data, 30% of the population is poor, it was impossible to simply ignore the essential goods in the consumer basket’, he says

According to official statistics, 30% of the population live below the poverty line, on less than $2.5 per day.

Yelk vs the Republicans

The head of the opposition Yelk parliamentary faction, Nikol Pashinyan, says that in order to stop inflation, changes need to be made to the Tax Code without delay.

‘The parliamentary majority [the ruling Republican Party] will not compromise until tens of thousands of citizens take to the streets stating their demands’, Pashinyan says.

On 19 January, Yelk organised a march against rising prices. Edmon Marukyan, a member of the party, appealed to citizens saying the party voted against the new Tax Code, and complaining that their own proposals have not been adopted. They demanded the authorities reverse the changes to excises and income taxes, and are organising another rally for 5 February.

‘If the authorities do not take a step towards us, Yelk will present its version of the amendments to the Tax Code, will get signatures from a quarter of the deputies of the National Assembly, and demand an extraordinary meeting’, said Nikol Pashinyan.

Responding to the demands, Chairman of parliament’s Economic Committee, Khosrov Harutyunyan, said the return to the previous rates ‘is impossible and meaningless’.

The government agreed to make concessions only on the issue of subsidising diesel fuel for the agricultural sector.

‘There was no provision for subsidising diesel fuel, but on the instructions of the Armenian President, we analysed the situation on the market and prepared a programme aiming to continue subsidisation’, Agriculture Minister Ignat Arakelyan said.

Are the authorities concerned?

On 10 January, President Serzh Sargsyan held a meeting with the highest officials in the country, including the Head of the President’s Office and the Minister for International Economic Integration and Reform, to discuss the issues of rising prices in the country, and to discuss ways to mitigate the consequences. On 23 January, the parliament held hearings on the same issue, during which Prime Minister Karen Karapetyan compared inflation in Armenia to the levels in Georgia and Azerbaijan: 6.7% and 7.9% respectively.

‘You say that inflation is terrible? I say that it is not terrible. By the end of the year, our growth rates will be the highest of the three countries’, Karapetyan said.

According to him, drivers struggling with higher petrol prices can switch to liquified natural gas, which he said had gone up by only ֏25 ($0.05) and, thus, was just approaching 2015 prices.

He also said that raising tax rates are not an end in themselves. The ultimate goal is to develop the economy and pay off external debts. The external debt of the country currently stands at $6.8 billion, and this year Armenia plans to reduce this by $400 million. Karapetyan argued the government has chosen the least painful option.

‘If we didn’t raise it here, we would have to do it somewhere else to provide additional revenue and service our external obligations’, he added.

Secretary of Yelk, Gevorg Gorgisyan, believes that the aim of meetings with the president and parliamentary hearings is simply to throw dust into the eyes of society. He says that all the social problems solved in the country over the last few years were solved with unrest.

He insists that the upcoming march is not intended to gain support for Yelk, but to change the law. ‘In any case, when there is public discontent, some consequences are inevitable’, he says.

But not all opposition forces have joined the protest. On 16 January, Gagik Tsarukyan, leader of the Prospering Armenia party, who are often known to vote with the government, said to journalists: ‘do you think a street brawl will solve the question? Should we ballyhoo or regulate the problem? The president of the country offered to discuss the question in parliament. Every party will provide its solutions, and we will see what can be decided’.

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