World Bank Urges Action Against Armenian 'Shadow Economy' - Radio Free Europe / Radio Liberty © 2010

World Bank Urges Action Against Armenian 'Shadow Economy' - Radio Free Europe / Radio Liberty © 2010

YEREVAN -- The head of the World Bank in Armenia urged the government on June 18 to clamp down on a huge informal sector of the country's economy, RFE/RL's Armenian Service reports.

Aristomene Varoudakis said the shadow economy and the resulting tax evasion is one of the most serious problems hampering Armenia's economic development.

"I have no number to give you, but what I am hearing from different analysts is that the shadow economy in Armenia could be equivalent to as much as 35 or 40 percent of GDP," Varoudakis said. "And of course, it is a very important challenge to formalize this informal economy so as to increase tax revenues and be able to pay for much needed social services."

Varoudakis said companies involved in the shadow sector would also benefit from the legalization and transparency of their operations. "And people working for those businesses will be better protected," he argued.

Both the World Bank and the International Monetary Fund have long been pressing Armenian authorities to improve tax collection. The government and Prime Minister Tigran Sarkisian, in particular, have repeatedly declared improved tax administration a top priority.

Varoudakis said government action is especially needed in Armenia's export-oriented mining industry. "Now the mining sector is rather undertaxed in Armenia," he said.

The World Bank official said the government has pledged to remedy the situation with major changes to Armenia's tax legislation regulating the work of mining companies. The planned reform will be financed from a $25 million budgetary loan, which he said the bank plans to allocate to the government this year.