“Small business in Armenia is killed systematically”

Says an American investor David Bequette

“There is a system operating in Armenia that supports not to the small and medium-sized businesses to reach success but, vice versa, to go bankrupt, and it is not necessarily to have a human factor in this, or any official abusing his position”, – such a conclusion was made by the American businessman David Bequette who has established a small business in Armenia 3 years ago. David Bequette is one of the founders and owners of the “Green Bean” Café. In the interview with “Aravot”, David tells and brings examples of how the business in our country is killed systematically and step by step. David says that it is very easy to register the business in Armenia, which is very positive, and also attractive, but after the business is registered, so many problems emerge that can make the businessman disappointed.

Step One of killing the small businesses. MES’s visit

The very first day of opening the doors of the café, the employees of the Ministry of Territorial Administration and the Emergency Situations visited the café, but not as a customer, but as an inspection body and, as David says, they saw that the anti-fire system is not installed, they wrote down a protocol with a fine of 50 thousand drams. “For the cafés like ours, this amount is 14th of the daily revenue, this actually is not a small amount. I do not understand why they immediately impose a fine rather than giving a warning and time to correct the problem. They wanted to fine for the lighting, but they did not find the codes of the lamps and did not impose a fine.”

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Step Two of killing the small businesses. “Welcome” Customs

The businessman encountered a very more disappointing problem at the customs service. David was astonished that this institution in an open text is asking for a bribe. The first time, when the owners of this Company, one of which, in addition to David, is Swiss Ivan Shan, tried to import coffee to Armenia for their café, they were asked some money at the customs and when the foreign businessmen were interested what it is for and demanded a document, they were told that it is a “treat from making a good deal.” “We said that we will not pay anything unless it is stipulated otherwise. We did not pay and our coffee was deliberately kept at the customs for 3 weeks. And our fight for our coffee to be imported by the Customs Code, Article 87 (Transaction Price Method For Determining Customs Value. N. B.) lasted quite a long time until we involved other stakeholders who were also interested. The problem is this inspection price, we did the first import with this inspection prices, this is the tool at the customs when they do not trust the documents and prices provided by well-known European companies, and the Customs is defining it prices for customs clearance. This is unacceptable when Armenia has closed borders from all sides, and because of the customs, our prices are 20-25% higher in the region, and the final price for the consumer becomes higher.”

To the point, the function of the broker as an intermediary person to work with the Customs, David also considers unacceptable. He says, “Why it is necessary to impose the businessman to use the paid services of the broker when the businessman can carry out this function alone.”

Step Three of killing the small businesses. “Hello, we are from “sanitary-epidemic station.”

The next inspection body and the so-called “attacker” on the small businesses, as David says, was the “sanitary-epidemic station”. This name was used previously, now, it is called a State Health Inspectorate. This structure also visited the café when it has just started to work and imposed a fine of 300 thousand drams reasoning that the kitchen and the fitting room of the kitchen personnel were close to the kitchen and it was separated by one door. David says that prior to designing the cafe interior they made a search on the Internet to find out the requirements for the food facilities but found nothing. “I understand that every country has its own laws, but when they enter and immediately fine 300 thousand drams, this is not the right approach. This is a huge fine for the small business, I do not understand again why the warning mechanism does not function in Armenia, let them give notice of warning first and if the entrepreneur does not correct the problem, then let them impose a fine.”

Armenia operates the mechanism for punishing small businesses

David says that a small business association operates in the United States, which is funded and managed by the state because the state is interested in developing small and medium-sized businesses, because it is the foundation of the economic development. This association, according to David, delivers free advice and information to beginning entrepreneurs to work correctly. “Why is there no such a thing in Armenia so that I, as a foreign investor, use this service and know what rules exist and what standards exist in the specific industry?”

The businessman notes that the two of them, the “Green Bean” founders, are foreigners and love to abide by the rules, but, “When we see that the whole system has the mechanism of punishing rather than supporting, it is very disappointing, moreover, the mechanism of punishing begins feeding this very corruption environment.” It is remarkable when the government introduces any innovation, “praising” that they are applying the experience of developed countries, it would be good to apply David’s example in Armenia saying that the US supports the small businesses rather than the method of imposing fine on every step.

Step Four of killing the small businesses. CRM receipts

The American businessman was first surprised and even disappointed at the use of cash registers. As David says, first, they are very expensive and monopolized. The businessman raises a question in bewilderment, why one company should import these devices, why there should not be a few of them to shape the correct price in the market. “We applied great efforts in Armenia thru the American Chamber of Commerce and wrote a long appeal saying that it is unacceptable and not correct.” Well, who we can explain a foreign businessman who does not have artificial monopolies in his homeland that the monopoly in our country is such a “sweet thing” for some people.

This device called a CRM device has become a real headache for the American businessman. David says that with this device the government directly intrudes into your business. “It is clearly stated there what product is sold in your café, and taking into account that the business in Armenia is closely intertwined with the political system, many people know who owns what business, and I as a businessman do not feel “comfortable” that the tax system controls my business. In other words, it sees that today I have sold this much coffee of this kind. The other day, my opponent who has an access to this system will take the secrets of my business and will use them.” David says that the CRM make it visible to the tax authorities, let’s say, which dish or drink is in demand in this specific facility, and they can quietly “possess” the secrets of this business and establish the analogue business. “Whereas, what kind of product I sell, it should remain the secret of my business.”

The government has introduced the cash machines allegedly to exclude the shadow, but in reality, such absurd problems arise in connection with it that the government, instead of eliminating the disadvantages, causes another obstacle for the entrepreneurs. These CRM devices are connected to a common system, this is how the Ministry of Finance calls it, so that no entrepreneur would try accidentally not to “punch” the CRM receipt, in other words, to hide the turnover. But the government does not consider that it is just a device, it can come out of order or the electricity of the facility is turned off, and in this case, the operation of this facility is interrupted, it has no right to continue operating without the CRM because of not being connected to the system, otherwise, it will be fined. David tells that it has already happened in the café that the device has failed, on time, the electricity was turned off and he had to stop the work in the cafe, and this means suffering losses and may be also losing customers. The businessman says that there is only one company servicing these CRM devices which works until 17:00 and when the device comes out of order after 17:00, they are able to serve their customers. “We are a company that works openly, transparent and honestly, so when the device went wrong, we did not violate the law and did not continue working. The requirement of having a CRM is one more unacceptable mechanism for the business.”

To the point, the American businessman says that the tax service had laid its task on the shoulders of the businessman when asking for an invoice from him. “Why should I submit a document saying where I have purchased this product, let the tax service follow up the company which sells its products and pays taxes rather than determining it with the help of me?” In addition, submitting a huge number of CRM receipts to the tax service is again a cause for disappointment. Each receipt should have the seal and the signature of the company, so David has to uselessly spend a few hours every week on signing these receipts one-by-one, while, as the businessman says, he should spent this time for developing his business.

When signing hundreds of receipts, you may possibly miss signing one receipt, this can be one more reason for the tax service to find an excuse that you are intentionally hiding it and you will be fined. “Every month, we spend an extra 1,000 USD from our turnover to rent an accounting company to escape communicating with the tax service. I am spending more than 20% in average for the product, which I obtain not directly from the farmer, but from other suppliers, just because I am obligated to provide a CRM receipt for my deals.”

Step Five of killing the small businesses. By income tax

David says that putting the income tax on the shoulders of the employer is a wrong mechanism. “We would like to pay higher wages, but we cannot because of this tax, if not for this tax, we would have opened more new jobs with high wages. And if the wages are low, the tax service begins suspecting something and doing researches. All these expenses together that I have mentioned is a huge amount of money for the small businesses, which we could invest in our business.”

Having a fair business in Armenia is an expensive pleasure and a great headache

David says that Armenia is such a small country that it is easily possible to make changes for the small businesses, only it requires a political will. “The government perhaps punishes some of them to show that it is fighting against the corruption, when the problem is merely in the system of governance, the reforms should be started from there and create a favorable environment for the business which would not be motivated to work in the shade. A fair and pure business is a principle for us, but in reality, this is an expensive pleasure in Armenia and a big headache.”

 Nelly BABAYAN, “Aravot” daily