At its September 30, 2021 sitting, the Government of the Republic of Armenia approved the draft of a new decree on non-cash transactions. In parallel with the adoption of this law, amendments to many other laws are also envisaged. According to the published draft, no decreases in government spending are envisaged.

The law will apply restrictions to transactions executed in the Republic of Armenia, as well as those executed outside the territory of the Republic of Armenia, but result in payment in the Republic of Armenia. It is related to:

• salaries, scholarships, pensions, and benefits;
• property alienation utilization transactions;
• works performed and services rendered;
• loans/borrowings;
• representation expenses, and payments made for business trips and other purposes.

Although the law elaborates on the concepts of cash and non-cash payments, it does not address payments executed via cryptocurrencies.

In general, the maximum threshold for cash transactions is set at AMD 300,000, except for certain cases when special regulations are provided by law.

For example, non-financial organizations, and individuals among themselves, can provide “given borrowings” that do not exceed AMD 1 million, while pawnbrokers are required to provide loans that exceed AMD 20,000 through non-cash means only.

The requirement for non-cash payment of salaries, scholarships, pensions, benefits and representation expenses will gradually spread throughout the territory of the Republic of Armenia, except for persons with disabilities, who can receive their salaries in cash upon a written request. It might also be noted that, as of July 1, 2020, the number of people over the age of 18 who are under the retirement age, exceeds 100 thousand.

Any payment from the state or local budgets will be made non-cash, unless the government makes exceptions. In Yerevan, this requirement is partially defined by Article 192 of the Labor Code of the Republic of Armenia.

All these proposed changes are to provide large revenues to the banking system in the form of commissions, for which the Central Bank of Armenia is authorized to set the maximum and minimum limits on commissions.

As a sector that is more exposed to shadow economy and corruption risks, there is a special demand for non-cash payments for medical organizations, which in turn will cause problems, especially for 24/7 service organizations. For example, a payer is unwilling to pay via non-cash means, while the required medical care will be more effective if provided on an urgent basis.

As projected by the new law, restricting the payment of insurance compensations to non-cash means will become an additional burden for the recipients of small compensations, especially in the case of CMTPL compensations.

Splitting (dividing) the transaction to avoid the restrictions is prohibited. When executing transactions or paying for them in a foreign currency, the average exchange rate published by the Central Bank of Armenia on the day of payment is taken into account.

Certainly, in order to facilitate the transition to such a large rate of non-cash payments, the law stipulates requirements for business owners to supply the payment points with payment terminals and other necessary equipment.

One of the goals of the project is to strengthen tax and customs control and increase efficiency. The State Revenue Committee will be responsible for the oversite and the implementation of the law, and the application of the sanctions, while in the case of financial institutions, the responsibility will be vested in the Central Bank.

Fines are envisaged in a range between AMD 200 and 300 thousand. However, each case is considered a separate violation. For cases that have already been fined in accordance with the tax code, no penalty will be applied.

The rationale behind this proposal does not assume or predict the consequences of its adoption on the interest rates of loans, and their collectability challenges. However, it is obvious that such a large flow of money to the banking system will probably reduce interest rates on deposits and loans. The greater transparency of citizens’ incomes obtained through this law will increase the repayment of hardly collected loans. The SME Association of Armenia has expressed some concerns about the impact of the law on small and medium-sized businesses. It is clear that the reduction of the shadow economy will lead to increased efficiency and effectiveness of governance, both in the state structure and in private organizations. However, the negative impact on the purchasing power of the population resulting from inflation will be inevitable.

Unfortunately, many individuals who will try to circumvent these restrictions, something that could lead to a significant increase in the adoption and circulation of cryptocurrencies. Therefore, the government must think in this direction as well.

Nevertheless, in parallel with the developers of this proposal, we also believe that adopting of the law in Armenia will create and promote the culture of non-cash payments.

Sources:

Official website of the Government of the Republic of Armenia

E-draft platform for discussing draft laws