IT sector in Armenia expresses concerns over new tax reforms and their impact on future growth

YEREVAN, February 24. /ARKA/. Issues related to Armenia’s IT sector, including the tax changes implemented by the government, were discussed by representatives of the IT industry in a podcast on the BigStory Podcast channel.

In particular, Artavazd Minasyan, co-founder of Krisp and 10Web, noted that the reduction of the turnover tax for individual entrepreneurs to 1% has led many companies to consider closing down, registering employees as individual entrepreneurs, and working directly with foreign companies.

"The entire community is very unhappy. This project started with the idea that Armenia should not fall behind Georgia and Serbia, but the law does not solve this issue; in fact, nothing has been done to address it," he said.

He also pointed out that the initiative to reduce income taxes from 20% to 10% for enterprises engaged in research and development (R&D) also caused discontent.

"It was considered an investment in the sector, but in the end, a definition of R&D was adopted such that if we follow it, we are essentially talking about pure scientific activity. That means we're talking about people who create innovations, and they make up about 1% of Armenia’s 30,000-strong IT sector. As a result, the part of this project that was meant to provide the biggest support ended up being a mere show," Minasyan said.

The representative of the sector noted that attempts were made at various levels to convey the community’s dissatisfaction to the government, but the concerns did not reach the intended audience, and now communication with the Ministry of High-Tech Industry has effectively been frozen.

Meanwhile, Artavazd Yeritsyan, founder and CEO of Podcastle and former vice president of Picsart, pointed out that the tax benefit for startups with fewer than 30 employees, under which the income tax was 10% instead of 20%, is being canceled.

"The original goal of the project was for all enterprises in the sector to be treated as startups, regardless of their size, in order to increase competitiveness. But now it turns out that taxes have gone up for everyone," he said.

As Yeritsyan noted, such changes mean that startups that, for example, attracted funding for 18 months to develop a product and attract new financing, are now forced to allocate only 15 months for development due to the government’s actions.

"In my opinion, no government in the world could have done worse than this for its IT sector… Now I see that all young startups are thinking about not starting here, but starting abroad, opening individual entrepreneur accounts. It feels like they first ran a marketing campaign saying they wanted to do something good for IT, and then, apparently, the Ministry of Finance said it was impossible, but the marketing remained. The reality is that short-term budget replenishment is a more important priority than long-term value creation," he said.

About the 7-year Incentive Program for the IT Sector

On December 4, 2024, the Armenian Parliament approved long-term tax incentives for IT companies, valid for a 7-year period – until January 1, 2032, with the possibility of an extension (in recent years, tax incentives were set for one year, after which they were extended).

According to the new support package, the turnover tax rate for IT companies and individual entrepreneurs with an annual turnover of less than 120 million drams is reduced from the current 5% to 2%.

Employment of new employees is encouraged – for companies with fewer than 30 employees, the income tax refund will be 100%, compared to the previous 20%; for larger enterprises, it will be 50%.

Additionally, companies that attract highly qualified foreign specialists to the production process will be eligible for a 50% income tax refund.