M. Kotanyan Institute of Economics, National Academy of Sciences of the Republic of Armenia, Yerevan, Republic of Armenia

Makaryan A. R., Candidate of Economic Sciences

Armenian State University of Economics, Yerevan, Republic of Armenia

Mkrtchyan H. G., Candidate of Economic Sciences, hamlet.mkrtchyan21@gmail.com

Institute of Socio-Economic Problems of Population named after N. V. Rimashevskaya FNISC RAS, Moscow, Russia

Dokholyan S. V., Professor, Doctor of Economic Sciences

M. Kotanyan Institute of Economics, National Academy of Sciences of the Republic of Armenia, Yerevan, Republic of Armenia¹ ; Armenian State University of Economics, Yerevan, Republic of Armenia²

Manukyan G. T.^1,2, Associate Professor, Candidate of Economic Sciences

The Government of Armenia switched to a hybrid royalty system in 2023 from a royalty assessment method effective from 2012 to 2022 to generate more fiscal revenues. However, the decision of the Government was not substantiated by two measures that could justify and rationalize the need to move to a system with higher progressivity in the respective legislative act. According to the mineral rents-to-GDP ratio in Armenia, some progressivity would not be considered a heavy burden for the companies representing the mining of metal ores and would not endanger the growth of the industry (A.R. Makaryan & S.A. Dallakyan, 2023). Moreover, the measure of the royalty buoyancy was neither calculated nor estimated to rationalize the move to a new system. Therefore, authors estimated it with respect to real exports based on the annual data and using the least squares method. Authors found that the measure of the short-run buoyancy was less than one. An increase in real exports of companies representing the mining of metal ores could cause an increase in the royalty payments by only 0.82%, highlighting the need for a more progressive system. The non-buoyant nature of the system could limit its capacity to stabilize fiscal revenues during business cycle fluctuations automatically. With the hybrid system, the exchange rate of the Armenian dram vs. the US dollar would affect the Government’s fiscal revenue mobilization efforts, coupled with the mining companies’ strategies. Authors proposed a multiple-rates ad valorem system to function as a provisional system alongside the hybrid system during the transition period, with mining companies choosing a system and switching to the proposed one upon completion of the transition period (A. R. Makaryan, 2023). The proposed multiple-rates ad valorem system could be relatively easy to administer, reduce compliance costs, and ensure higher economic efficiency and stability of the legislative framework.

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