Central Bank President on Limitations of Income Tax Reimbursement

The implementation of the law limiting income tax reimbursement does not currently pose significant risks to the financial system. This was stated today by Martin Galstyan, the President of the Central Bank of Armenia, during a press conference.

When asked whether the anticipated implementation of the law regarding the limitation of income tax reimbursement raises concerns about serious issues in the banking sector, the Central Bank president responded: “In economic theory, there is a concept that industrial—meaning sector-oriented—economic policy should exclusively aim to eliminate any market imperfections and be of a temporary nature. The income tax was a significant incentive for individuals and companies. Naturally, a decrease in funds supplied to the market can cause certain problems.”

He noted what actions were taken: “Banks, through agreement and regulation with the Central Bank, increased the counter-cyclical buffer by 150 basis points, meaning they did not distribute the earned funds among their shareholders, but rather increased their capital reserves to have a certain reserve of stability to cope with the situations you describe.”

“Secondly, we checked the so-called special account, in other words, whether there were funds in those special accounts that could mitigate potential risks when they arise. In many cases, such funds existed. But there was also the opposite picture, which stemmed from the imperfection of our legislation. Because, in fact, if a developer managed to obtain the signature and consent of a person, they could use the funds available in that special account. From this perspective, we have conducted several exercises. At this moment, we believe that significant risks do not threaten the financial system.”