Economist explains how situation with Spayka may affect investment climate

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YEREVAN, April 10. /ARKA/. Hrant Mikaelyan, an economist from the Caucasus Institute in Yerevan explained how the ruling of a local court allowing the arrest of the head of Spayka company David Ghazaryan, may affect the country’s investment climate and the economy as a whole.

Last week Armenia’s State Revenue Committee (SRC) accused Spayka of evading over 7 billion drams ($14.4 million) in import taxes and asked a court in Yerevan to allow Ghazaryan’s pre-trial arrest. Ghazaryan denied the accusations when speaking at a news conference before the court hearings last Friday.

Ghazaryan argued that the 5.5 billion drams of the alleged amount of evaded taxes are VAT that must be returned to the company in accordance with the legislation. On Monday a court in Yerevan allowed his arrest for two months. According to Mikaelyan, further developments are of great importance for the investment climate. The most important thing, in his opinion is that this situation is transparent and free of a political context.

“It is also important that David Ghazaryan is not sentenced to imprisonment. Another question is how this will affect the company itself: will it force a change of ownership or not?. This will ultimately determine the attitude of local businesses and foreign investors to this situation,” he said. Mikaelyan said also that this situation will force investors to postpone investment project in Armenia in order to sort out what is happening and to protect themselves from possible anti-legal actions of the authorities.

“On the other hand, the fight against tax evasion is worldwide world, and therefore, the outcome of this situation will be important for investors. It’s another thing how this situation will affect business. We will know this in the middle of the year, judging by the investment activity and the status of investment projects,” said Mikaelyan.

At the same time, the economist believes that this situation will not affect economic growth unless the process drags on. Otherwise, the issue of organizing the procurement and export of agricultural products will become urgent. “If this year’s work is not done properly, then farmers will reduce agricultural production next year. Thus, if this story drags on, the growth of agriculture and related areas will be damaged. In addition, investment plans will be at risk,” he said.

According to Mikaelyan, the Armenian business treats the new authorities with caution, therefore the detention of a big businessman is stirring up their concerns. “This is a signal to the business that, regardless of the status of a businessman, he can be charged, he can be detained. A couple of days ago, the Prime Minister testified against a relative. The government shows that it will not be selective and will not stop. Now the rules of the game are being established along with demonstration of who governs the country,’ he said.

Summarizing, Mikaelyan added that the policy of strengthening or restoring the rule of law in the short term will have negative consequences, but in the long term it will be positive.

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