Over past seven months, four IT companies liquidated in Armenia, four bankrupt, 17 more are in liquidation, 342 individual entrepreneurs deregistered

Four IT companies were liquidated over the last seven months of 2022 in Armenia, where IT sphere is declared a priority sector. Seventeen more companies are in the process of liquidation, four more companies have been declared bankrupt and 342 individual entrepreneurs were deregistered, according to the data provided by the Ministry of High-Tech Industry of Armenia in response to a written request by NEWS.am Tech.

The Ministry noted that the total number of employees of business entities that have been closed/deregistered over the past seven months was 585. The ministry also said that in April alone, the number of employees of 1,006 companies increased by 7,887 in 2022. When asked how many companies are operating in the IT sector in Armenia, the Ministry replied that as of September 2022, there were 2,794 business entities active in the IT sector and submitted a report to the Armenian Ministry.

"At the same time, the Armenian Ministry of High-Tech Industry has been implementing a certification process for start-up companies in the IT sector since 2015. An unprecedented growth of certified companies was recorded in 2022. Specifically, as of November 8, 2022, the number of business entities that received a new certificate increased by 1,230 (of which 1,105 founders were citizens of other countries). Thus, Armenia created attractive conditions for foreigners as well," the Ministry said.

When and why are there problems with IT?

The problems of Armenian IT companies began after the Russian-Ukrainian conflict, when the dollar and the euro began to depreciate sharply. This hit the Armenian IT companies hard, since the vast majority of them export their products and are paid in foreign currency.

Different companies tried to solve the problems in different ways. Some started to cut the staff, some became freelancers, some companies reduced educational programs or stopped them altogether. However, the worst-case scenario could not be avoided, and some companies actually closed.

What is the government doing?

In order to support companies in the IT sector, the Ministry of Economy has developed a project that proposes to return the income tax for companies in the IT sector from September to December. But Gevorg Safaryan, Director of Earlyone and LimeTech companies and Board Member of Advanced Technologies Union, told NEWS.am Tech that even this version of the project is ignored: there has been no response from the government for two months now.

Representatives of the IT sector, experts suggest applying the income tax refund for a longer period, although the tax refund project, even if it is finally implemented, will not solve the problem globally, because the companies are suffing a 25% loss because of the foreign currency depreciation, and the income tax refund, which is planned for 4-5 months, will smooth out only 10-15% of the loss.

"There can be long-term programs, for example, in the form of tax breaks. For example, Russia has reduced taxes so that IT companies do not leave the country. Many companies may also leave Armenia, first because of unfavorable conditions, and second because of layoffs, which will cause people to start working for foreign companies and leave the tax field," he says.

Deputy Prime Minister's address to the issue

 Deputy Prime Minister Mher Grigoryan stated during a question and answer meeting between the Government and the National Assembly on Wednesday, that he is personally against legislative and fiscal changes which should relieve IT companies facing financial difficulties because of foreign currency devaluation. Deputy Prime Minister said that at the moment the measures, developed by the government, are have been made public, and if not, they will be in the coming days. He said, it is a question of compensation measure, expressed in AMD, which according to Deputy Prime Minister should be temporary in any case. Mher Grigoryan, however, believes that the problem should be solved and the measures aimed at solving the problems faced by IT companies should be temporary in nature.

"Certainly, any earnings or income received in foreign currency in this situation negatively affects both earnings and income, even sales revenue. And this problem really needs to be addressed... But I personally... don't know how the final discussion will end, but I personally am against legislative changes that should serve this adaptation function. And I'm also against a fiscal one. Fiscal changes can't be made in these cases, we can't make fundamental legislative changes. I think we will help and compensate for this loss, but with with a correctly selected target," he said.

How to save the IT sector?

According to Hayk Chobanyan, executive director of the Union of Advanced Technologies Enterprises, in order to save the high-tech sector, the state must first respond very quickly, speed is very important here, because many companies have suffered irreversible losses during these months, including lost customers with whom they have worked for years.

However, in addition to short-term solutions, he said, long-term solutions are needed in the field that will provide at least some stability to local organizations in the coming years. The most acceptable one, he said, is a hedging tool that allows the exchange rate to be fixed with the banks for a certain period of time - six months or a year.

"This will at least allow the implementation of new contracts by fixing the exchange rate to avoid fluctuations in the exchange rate. There are other tools that the whole world uses: these are special economic zones, a special fiscal policy for strategic areas," he says, adding that the attitude of the state is very important here.

IT-companies in the list of the largest taxpayers

According to data for January-September, 67 IT-companies were included in the list of 1,000 major taxpayers. For comparison, in the first half of this year, the list of major taxpayers includes only 39 IT companies.

The 67 IT companies included in this list in January-September paid about 36.3 billion drams in taxes (over $90 million) or 2.6% of the income controlled by State Revenue Committee. In the first half of the year, IT companies paid 25.2 billion drams in taxes, but for the entire year of 2021, the IT companies included in the list of 1000 largest taxpayers paid only 38.7 billion drams in taxes.