Armenian Economic News

Tuesday 29, July 2008
Wireless Operator Becomes Armenia's Top Taxpayer
By Emil Danielyan

A Russian-owned company operating one of Armenia's two mobile phone network has become the country's number one corporate taxpayer, doubling its contributions to the state budget in the first half of this year.

According to the State Tax Service (STS), K-Telecom, the owner of the VivaCell network, paid 15 billion drams ($50 million) in various taxes, sharply up from 7.4 billion drams paid in the first half of 2007.

By contrast, three other major Armenian companies, which previously topped the taxpayer lists regularly published by the STS, each paid approximately 20 percent less in taxes during the same period. One of them, the ARG natural gas distributor, is a distant second it the latest STS rankings with a net contribution of 9.4 billion drams. It is followed by the national telecom- munications company ArmenTel (8.2 billion drams) and the Zangezur Copper-Molybdenum Plant (8 billion drams).

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K-Telecom's performance reflects the dramatic expansion of a wireless network that was launched three years ago following the abolition of ArmenTel's cont- roversial monopoly on mobile telephony. More than two-thirds of an estimated 1.9 million mobile phone users in Armenia are currently subscribed to VivaCell. K-Telecom, which was purchased by Russia's Mobile TeleSystems for $430 million last year, claims to have attracted 400,000 subscribers between September 2007 and April 2008 alone.

ArmenTel and its Beeline wireless division have been owned by another Russian mobile operator, Vimpelcom, since 2006. ARG and Zangezur are also controlled by foreign investors.

Armenia's other leading corporate taxpayers include companies importing fuel, basic foodstuffs and cigarettes, tobacco factories, the national electricity distribution and rail networks as well as the nuclear power station at Metsamor.

The Armenian government's tax revenues soared by 37.4 percent to 226 billion drams ($750 million) in the first five months of 2008. Proceeds from value-added tax accounted for just over half of those revenues and were up by 53 percent in absolute terms. By comparison, corporate profit tax generated only 17.5 percent of the total in what analysts see as an indication of continuing widespread tax evasion in the country.

The Armenian authorities and Prime Minister Tigran Sarkisian in particular have declared improved tax administration and the fight against tax evasion a top priority. In recent months, tax authorities have reportedly stepped up their often controversial financial inspections of local firms suspected of underreporting their revenues.

In the latest anti-fraud measure, the STS on Monday ordered a dozen food supermarkets in Yerevan to suspend their operations for between up to ten days, saying that they evaded taxes by systematically failing to issue cash receipts to buyers. It also issued warnings to 13 other large
shops monitored by tax officials. They were found to have committed such violations on a smaller scale.

In a written statement, the STS said the crackdown on tax fraud in retail trade will be `continuous' and urged all businesses to `operate within the framework of law.'

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ARMENIAN INFLATION REACCELERATES IN JULY
by Venla Sipila
World Markets Research Centre
Global Insight
August 4, 2008

Armenian consumer prices increased by 10.7% year-on-year (y/y) in July, ARKA News reports, quoting the latest figures from the Armenian National Statistical Service. Thus, inflation accelerated compared with the respective June and May results of 9.6% y/y and 9.9% y/y, climbing back to match its April rate. Food price inflation accelerated to 12.9% y/y after registering an already elevated rate of 10.1% y/y in June. Service tariffs also continued their rapid gains, rising by 11.1% y/y in July, while prices of non-food goods increased by 6.9% y/y. Measured month-on-month (m/m), Armenian consumer prices retreated by 2.2% in July, after falling by 0.5% m/m in June and rising by 1.3% m/m in May. The clear fall in July was brought about by a significant
decrease in the cost of food in m/m comparison. Consumer prices have increased by 4.5% cumulatively during the January-July period, while the annual inflation rate of the first seven months of the year came in at 9.2% y/y.

Significance:The reacceleration of annual inflation is discouraging,
while the clear m/m fall in food prices in July represents welcome
news. It still seems likely that the official inflation target of 4%
(with 1.5% on either side) this year will prove too optimistic. The
Central Bank of Armenia (CBA) has fought rapid inflation by several
consecutive interest rate rises, the latest taking the policy rate
up by 25 basis points to 7.25% in July (see Armenia: 3 July 2008)).

A further rise may follow the publication of July inflation
data. However, with the effect of interest-rate increases remaining
limited in the undeveloped financial environment, the key means for
curbing inflation for the CBA remains letting the dram appreciate
considerably, as robust remittances and investment inflows
continue to boost foreign currency inflows. Indeed, in addition to
strong inflation pressure from the cost side via increased energy and
food prices, demand-side factors also continue to play a role in
boosting Armenian inflation. The International Monetary Fund (IMF)
recently stated that fiscal restraint would be crucial in containing near-
term inflationary pressures (see Armenia: 23 June 2008: ).

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ARMENTEL FINED FOR ABUSING DOMINANCE
ARKA
July 31, 2008

YEREVAN, July 31. /ARKA/. On Wednesday, Armenian State Commission for Protection of Economic Competition fined ArmenTel Telecommunication Company (BeeLine brand) AMD 300 million (about $1 million) for abusing dominance on domestic market.

This amount constitutes 2% of the company's earning for 2007.

Russian Vimpelcom, the owner of ArmenTel, earned $235 million in 2007 against $27.4 million in 2006, according to the financial report.

Armine Hakobyan, chief of the commission's analyses unit, said at the commission meeting that the commission started considering ArmenTel case after receiving complaints from Web, Arminco and CrossNet provider companies.

The companies said that ArmenTel, abusing its dominance on market of Hi-Line cheap Internet services, barred the companies from providing similar services by refusing to lease lines.

Hakobyan said that the commission gave 15 days to ArmenTel for settling the matter.

She said that ArmenTel hobbles development of the area."Providing Hi-Line service to clients, which besides swift and cheap Internet implies also the usage of cable television in the future, ArmenTel creates unequal conditions for providers and operators", she said.

Andrey Birman, the director on operations of the company, said that the commission was deceived, and the company made whatever necessary. But the commission found the company's arguments unconvincing. The 0A commission fined ArmenTel and obliged it to solve all the problems with providers.

The providers must change terms of the contracts to enable the companies to provide Hi-Line services to third entities. ArmenTel is the daughter company of Russian VimpelCom (Beeline trademark), which is the owner of the company's 100% shares. It provides stationary services to 650,000 people, and the number of its mobile service users exceeds 780,000.

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ARMENIA: ON PER CAPITA STRONG ALCOHOL CONSUMPTION
Express.am
July 31, 2008 Thursday

According to the Union of Armenian Winemakers, per capita brandy consumption in Armenia amounts to 3 litres per annum, wine consumption to 1 litre per annum, and vodka consumption to 8 litres per annum.

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