FOREIGN FINANCING PROJECTS MANAGEMENT CENTRE TAX ADMINISTRATION MODERNIZATION PROJECT CREDIT No. 5114-AM SPECIAL PURPOSE FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT For the year ended 31 December 2018 CONTENTS Independent Auditors' Report 3 Statement of Project Sources and Uses of Funds 6 Statement of Uses of Funds by Project Activity 9 Notes to the Special Purpose Financial Statements 10 PHP Partners CJSC bpwtwptubmilwub hwugh' Z4, bpkwb,Ulbp UtwbnLluWU 15w и оо М � � � и N [� [� ^ l� � N О N v ^ � N М 7 � U м оо .-. оо о� � �° °° е� � '� �° о о R t� м cv �о [� оо й � .-. оо оо rn N N ^ �-: � О � � м l� �--� � в N N � и и � о й и ^• rn й �о � � и и м и о ^ о � � � и � .-� t� [� и м о� ^ ^ о с� iv v и о " N г� м �, °n с° с � и а� � С О 'а � сСС С С � � U ,У С й � О v С � � !ы. ь"" г � и CQ � � Q� GL а�+ х L U �..� С � О ц С bp � bA �� bA � � � С w V� bд LL С �� С са i. С ы �� СО .р С у� С ,,,,, •С С � •V „ С�? •V L � .U .b рД ы � •v р � � > с�д � � и ' с�а а�+ 'D � > . 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U U �� ь., U •1 .�. в✓ U U � " „и, ^ ^ а°i с�о .°i�. � � � : � ° с�а ° ^ с ° •� ` Q� Е сд � � � Е оЛ ❑ � �� � ол с 4, � од с i°, � С� с 4=, с� i с г+, v с 4� .о aui Q� Со �•с� = �С ё�•� C.i й� Е'� � 4 е'° �'� = а с .о � � ё � � � ` � � � � ` � � � � :D ` � � � :.д � �, гs 4,q �С7г� U 40�'С7г� U 4�:л�'С7а•�'.U 4�, гС7г� U F� Tax Adininisiration Modernization Project les to the Special Purpose Financial Statements foi- 1heyear ended 31 December 2018 Background fm (a) Orcyanisation and operations The Foreign Financing Projects Management Centre (FFPMQ State Institution was established by RoA Minister of Economy Decree No. 37, dated 29 March 2000. Within the scope of its operation, the FFPMC is guided by local legal acts and Credit and Grant Agreements, signed between the Government of Armenia and tile International Development Association (World Bank). The main objective of operation of FFPMC is to implement projects oil tile account of credit and grant proceeds allocated to the Republic of Armenia by the World Bank. Nevertheless, according to the Republic of Armenia Government Decree #I 427-N dated 13 December 2018, tile activities of tile FFPMC will be implemented by the Project Implementation Department of the Ministry of Finance of the Republic of Armenia through auxiliary professional structural subdivision. Currently, FFPMC undergoes a process of liquidation and transfer of its functions to the Project Implementation Department of the Ministry of Finance of the Republic of Armenia. According to the financing agreement concluded between the International Development Association and Republic of Armenia dated 9 July 2012 (Financing Agreement) a credit in an amount equivalent to seven million eight hundred thousand Special Drawing Rights (SDR 7,800,000) was extended for tile implernentation of Tax Administration Modernization Project to finance procurement of goods, consultants' services and incremental operating expenses. Tax consequences arising from the procured goods, consultants' services and incurred operating expenses are paid form the proceeds of tile co-financing received from the Government of tile Republic of Armenia. Total arnount of Government co-financing approximates to USD 3,100,000. The Project's objective is to modernize Armenia's tax administration in order to: " Increase voluntary tax compliance, " Reduce tax evasion, " Reduce compliance costs, " Increase administrative efficiency. The Project consists of the following parts: " Part A: Institutional Development and Change Management Provision of consultants' services to the Ministry of Finance (former State Revenue Committee for Tax) of the Republic of Armenia workflow analysis and developing organizational restructuring plan, and purchase of equipment for tax administration centers, " Part B: Strengthened Operations Provision of consultants' services to the Ministry of Finance, and goods and information technology (IT) systems and software to tax service centers providing range of services to taxpayers, " Part C: IT Infrastructure and Systems Modernization Provision of goods to the Ministry of Finance to upgrade its Information and Communication Technology to develop a comprehensive and integrated tax management system, " Part D: Project Management Provision of Operating Costs and consultants' services to FFPMC and Ministry of Finance to assist in the Project implementation and management, and provision of technical assistance, including Training. Tile project closing date has been extended till January 31, 2019. Note 7 Events after tile reporting date discloses all the transactions incurred from tile reporting date to closing date of the project. 10 Tax Adninistration Modernization Project Notes to the Special Pupose Financial Statements for the year ended 31 December 2018 2 Basis of preparation (a) Statement of compliance The special purpose financial statements are prepared in accordance with the cash basis of accounting in line with the International Public Sector Accounting Standard (IPSAS): Financial Reporting under the Cash Basis of the Accounting. The special purpose project financial statements consist of: - Project Sources and Uses of Funds, - Uses of Funds by Project Activity, - Statement of Financial Position, - Statement of Designated Accounts, - Statement of Project Account. Cash basis of accounting recognizes transactions and other events only when cash is received or paid. (b) Reporting currency The reporting currency of special purpose financial statements is US dollar (USD). All financial information presented in USD has been rounded to the nearest USD. 3 Significant accounting policies (a) Foreign currency transactions In the scope of the Project IDA makes disbursements in USD on the designated account 900000903451 for the project. Payment of eligible and accepted expenditires (goods, services and other) should be made by the FFPMC out of designated account, or FFPMC will submit withdrawal applications to the Bank for payments to contractors, suppliers and consultants directly from loan account. FFPMC converts the amounts received and transfers to contractors, suppliers and consultants. The outstanding balances of the project account are translated to USD based on the USD exchange rate defined by the Central Bank of the Republic of Armenia as at 31 December 2018 equaling to AMD 483.75. (b) Taxes All the applicable tax liabilities are calculated and paid in accordance to tax regulations of the Republic of Armenia. (c) Funds for the Project Funds for the Project are received from the International Development Association and from Government of Armenia. II Tax A dmn7inistration Modernization Project Notes to the Special Purpose Financial Statements for the year ended 31 December 2018 4 Reconciliation statement of withdrawal applications 2018 Amount Withdra-wal Amount Aon Wi.trw Application Expenditure Amut Paid by Application T eotd Requested WrdDifference Reference peby FFPMC Bn Bank USD USD USD USD Advance to Designated 18 DA Account 514,492 Advance to Designated 18 DA (SS) Account 106,994 621,486 621,486 - 621,486 621,486 621,486 - Advance to Designated 19 DA Account 345,923 Advance to Designated 19 DA (SS) Account 14,568 360,491 360,491 - 360,491 360,491 360,491 - Advance to Designated 20 DA Account 60,961 Advance to Designated 20 DA (SS) Account 522,606 583,567 583,567 - 583,567 583,567 583,567 - Advance to Designated 21 DA Account 25,699 Advance to Designated 21 DA (SS) Account 486,856 512,555 512,555 - 512,555 512,555 512,555 - Advance to Designated 22 DA Account 75,763 Advance to Designated 22 DA (SS) Account 482,799 558,562 558,562 - 558,562 558,562 558,562 - 2,636,661 2,636,661 2,636,661 - 2017 Amount Withdrawal Amount Aon Witdraal Application Expenditure RmutPaid by Application Tyerpotdequested WrdDifference RefreceType reported byFPC World Reference by FFPMC Bn Bank USD USD USD USD Advance to Designated 13 DA Account 333,149 Advance to Designated 13 DA (SS) Account 84,002 77,151 77,151 - 417,151 77,151 77,151 - Advance to Designated 14 DA Account 35,572 Advance to Designated 14 DA (SS) Account 84,704 457,276 457,276 - 120,276 457,276 457,276 - Advance to Designated 15 DA Account 115,738 Advance to Designated 15 DA (SS) Account 126,992 242,730 242,730 - 242,730 242,730 242,730 - Advance to Designated 16 DA Account 1,269 Advance to Designated 16 DA (SS) Account 581,193 582,463 582,463 - 582,462 582,463 582,463 - Advance to Designated 17 DA Account 4,376 Advance to Designated 17 DA (SS) Account 364,185 368,561 368,561 - 368,561 368,561 368,561 - 1,731,180 1,728,181 1,728,181 - Tax Administration Alodernization Project Notes to the Special Purpose Financial Statements for the year ended 31 December 2018 5 Statement of Designated Account and Government Co-financed Account USD 2018 2017 Opening balance 278,515 482,848 Add: Advance received from World Bank during the current period 2,636,661 1,728,181 Present outstanding amount advanced to the designated account 2,915,176 2,211,029 Closing balance carried forward to next period 71,723 278,515 Add: Amount of eligible expenditures paid during the current period 2,843,453 1,932,514 Total advance accounted for 2,915,176 2,211,029 USD 2018 2017 Opening balance - 3,623 Add. Government co-financing during the current period 459,399 397,488 Foreign exchange difference (1,175) (1,071) Present outstanding amount advanced to project account 458,224 400,040 Closing balance carried forward to next period - - Add: Amount of eligible expenditures paid during the current period 458,224 400,040 Total advance accounted for 458,224 400,040 14 Tax A dMinistration Modernization Project Notes to the Special Pwpose Financial Statements for the year ended 31 December 2018 6 Statement of Financial Position USD 2018 2017 ASSETS Current assets Cash and cash equivalents Government co-financing account for credit - - Designated Account for credit (World Bank financing) 71,723 278,515 Total current assets 71,723 278,515 Non-current assets Cunulative Project Expendeture Government co-financed cumulative expenditure 2,213,785 1,755,561 Credit financed cumulative expenditure 10,959,456 8,116,003 Total non-current assets 13,173,241 9,871,564 Total assets 13,244,964 10,150,079 FUNDS Project financing Government co-financing account for credit 2,231,558 1,772,159 Designated Account for credit (World Bank financing) 11,031,180 8,394,519 Total funds 13,262,738 10,166,678 Foreign exchange differences Government co-financing account for credit (17,774) (16,599) Designated Account for credit (World Bank financing) - - Total foreign exchange differences (17,774) (16,599) Total net assets and liabilities 13,244,964 10,150,079 15 Tax Administration Modernization Project Notes to the Special Pupose Financial Statements for the year ended 31 December 2018 7 Events After Reporting Date In January 2019, Government financing was received in the amount of USD 2,323. In January 2019, consultancy services were paid in the amount of USD 3,383 under Part D: Project management, from which USD 2,437 from Credit financing and 946 from Government financing.