VZCZCXRO1271
PP RUEHDBU RUEHLN RUEHSK RUEHVK RUEHYG
DE RUEHYE #0085 0440952
ZNR UUUUU ZZH
P 130952Z FEB 09
FM AMEMBASSY YEREVAN
TO RUEHC/SECSTATE WASHDC PRIORITY 8627
INFO RUCNCIS/CIS COLLECTIVE PRIORITY
RUEHLMC/MILLENNIUM CHALLENGE CORPORATION WASHINGTON DC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY

UNCLAS YEREVAN 000085 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN AM
SUBJECT: PAY YOUR TAXES, WIN THE LOTTERY! 
 
  SUMMARY 
------- 
¶1. (SBU) In an effort to encourage greater tax compliance by 
both retail sales outlets and consumers, the State Revenue 
Committee this month introduced a lottery that pays prizes to 
persons holding a winning cash register receipt.  This 
follows regulations issued last fall requiring all retail 
sellers to install cash registers. The GOAM has adopted this 
strategy to reduce the size of Armenia's "gray" economy and 
increase its low rate of tax collections.  The lottery is 
supported by an extensive public awareness campaign. The Head 
of the State Tax Service reports that the lottery and 
increased enforcement have led to a 20-fold increase in the 
use of cash registers by retailers, though the impact of the 
lottery itself is not clear.  END SUMMARY 
 
MANDATING CASH REGISTERS TO STEM GREY ECONOMY 
--------------------------------------------- 
¶2. (U) In October 2008, the GOAM introduced a requirement 
that all retail markets install cash registers and provide 
receipts to customers, and began to enforce this requirement 
on January 1.  The GOAM estimates that 30-40 percent of 
economic activity in Armenia occurs, unrecorded and untaxed, 
in a gray economy.  This is one contributory factor to 
Armenia's 2008 tax/GDP ratio of 17 percent, which while an 
improvement over the 16.1 percent ratio of 2007, remains the 
lowest among CIS countries.  The cash register requirement, 
according to Aharon Chilingarian, Deputy Chairman of the 
State Revenue Committee, applies to all retail vendors, 
except in the most remote regions of the country. 
 
¶3. (SBU) Chilingarian told Econoff that the GOAM found the 
idea of a lottery by studying the experiences of several 
other countries --including Singapore--that had sought to 
improve retail tax compliance.  He reports that through a 
combination of increased enforcement and the lottery, the 
number of cash registers deployed in markets has increased 
from 400 to over 8,000 (Note:  He did not provide an estimate 
of how much each measure has contributed to this increase. 
End Note) 
 
PROMOTING A CULTURE CHANGE? 
--------------------------- 
¶4. (U) The GOAM hopes that the lottery will encourage 
customers to demand receipts from shop owners and market 
sellers, and estimates that the lottery--which it plans to 
run for three years--will increase tax revenues by USD 17 
million per year, equal to just over one-half percent of the 
federal budget. The winning number must match an eight-digit 
number printed on the back of each cash register receipt. 
The first drawing was held on Friday, February 6, with two 
winners each receiving approximately USD 1,800.  A single 
prize could be as high as USD 16,400.  In all, AMD 115 
million (about USD 375 thousand) will be available as prizes 
each month.  The GOAM is supporting the lottery with an 
extensive public awareness campaign, including television 
commercials featuring Armenia's best-known comedian.  Early 
anecdotal evidence suggests that the strategy is working; 
customers--often spurred by their children, as one of our own 
FSNs related from experience--are increasingly demanding 
receipts for their transactions, no matter the low odds of 
winning. 
 
COMMENT 
------- 
¶5. (SBU) While we fully support the GOAM's efforts to 
increase tax compliance at all levels of the Armenian 
economy, the lottery provides little direct incentive for 
retailers to install cash registers, though if consumers 
start to favor receipt-providing businesses that would bring 
market pressure.  Consumers have already begun to clamor for 
the government to award more prizes, even if at lower prize 
values.  We suspect enforcement penalties have likely been 
the greater motivator to date.  It remains to be seen how 
strong a factor this will become in changing consumer and 
retailers' behavior.  Nonetheless, it is possible that the 
lottery, combined with a public awareness campaign, could 
bring about a cultural change in a country accustomed to gray 
markets and tax avoidance.  Aside from enlisting consumers' 
help in boosting shop owners' compliance, the tactic may also 
help build a positive political constituency among consumers 
for the new cash register mandate, which is deeply unpopular 
with small business owners and had provoked angry muttering 
in parliament questioning the wisdom of imposing higher costs 
on the business community at a time of rising economic 
distress.  At any rate, the GOAM earns points for creativity. 
 
YOVANOVITCH