Government takes half of your salaries
How much do people lose from their salaries in Armenia that they say it is 5 per cent? This is a regular answer officials give when they are told that the compulsory pension fund policy is taking a significant part of people’s low incomes.
Maybe 5 per cent is not that much in the entire amount, however when we calculate how many five per cents like that are taken away by visible and invisible hands, we understand that the government is exploiting us.
To prove these words, we will bring an example (please see the illustration).
Let’s assume an average citizen’s salary is 100,000 drams. The income tax is 24,400 drams (we have double checked with an accountant), which does to the budget.
The remaining amount after tax is 75,600 drams. The compulsory pension fund payment that is 5 per cent is not calculated on this amount but on the gross salary, i.e. 100,000 drams. In this case it is not 5 per cent but 6,6 per cent of the net salary.
Accordingly, one that has a salary of 100,000 drams receives 70,600 drams net salary only.
Is there anyone who thinks this is all and the government does not touch the remaining amount? If you think so, you are mistaken because the government interferes with your right to manage that money, which is not done very openly.
This amount that remains (in this case 70,600 drams) is spent on utilities such as gas, water, electricity, as well as groceries. People pay for these services and products without thinking about the fact that they also pay VAT. In every payment you make for goods and services 16,6% of that amount goes to the government as VAT payment (in this case 11,720 drams of the total amount). There are products that also include excise tax, which we are not taking into consideration in our example.
It turns out that you spend only 58,800 drams directly on goods and services out of that 70,600. But this is not the end yet as the government wants to take more.
Companies that received the mentioned 58,800 have to show this inflow of money on their account, thus they pay income tax and salaries of their employees. These payments are approximately 10 per cent of that amount (5,880 drams). Merchants who sell the goods and services have to also pay for gas and VAT that is included in gas payment; however, we will not take this into consideration as it is compensated with the VAT payment you made.
Now let’s understand how much money was sent to the budget throughout this circulation. This amount is 42,000 drams (24,400 + 11,720 + 5,880).
IN our example, one that has a salary of 100,000 drams pays 42,000 back to the public budget, and 5,000 drams to a fund which is compulsory. This means that 47,000 drams out of 100,000 drams is not yours.
Margins of amounts to be paid are higher for those who receive higher salaries. For a number of imported products the government implies a 10% customs fee.
In a word, in fact citizens of Armenia are free to spend only the half of their income independently.
Is it much or no? Maybe it is OK for certain people as there are countries where the tax load is heavier.
We agree that there are countries that have heavier tax load but we also agree that people pay higher taxes and get good public services in return. They pay the government for good governance, better education and judicial systems, roads and other public services. They pay more but they demand and receive what they want, and if they don’t receive, they either do not pay or change the government.
The case with us is different is we pay more but receive less (corrupt education system, low quality healthcare, unfair judicial system, poor road conditions and public services). However, we are not able to refuse to pay or change the providers of public services. The reason we cannot bring about change is that the lower instances of those who provide public services have their share from this money, and they pass a part of that share on to the upper instances, and the higher ones – to their superiors, and this vicious cycle continues. We could use this experience to do more research and come up with a publication describing “how kickbacks are spent / allocated.”
The conclusion is that those who are discussing whether this amount is much or no would be better to ask themselves if they really deserve to be paid any money from that amount.
By Babken Tunyan
