The Armenian government yesterday reported a sharp rise in the number of new information technology (IT) companies that are benefiting from the tax breaks introduced three years ago to boost this growing sector in Armenia.

Under a government bill passed by the Parliament at the end of 2014, these companies employing up to 30 employees can be totally exempt from the profits tax. They are also entitled to a preferential income tax rate for their employees, equivalent to 10% of their gross salary.

Nearly 430 start-ups in the sector have benefited from five-year tax breaks thanks to a special government commission created since then. According to the Ministry of Transport, Communications and Information Technologies, 281 of them benefited from such derogations last year, compared with a hundred in 2016.

The department touted yesterday the privileged tax system in a statement and a video report that is attached to it. The images included interviews with the founders of three Armenian technology companies established in recent years.

One of them, Himnark, specializes in the development of accounting software. “We provided services to a foreign company and our profits were not taxed,” said his young owner Ruben Osipian. “We invested it in the development of new software. If there was no tax exemption, we would obviously have invested less.

“Our income tax is lower and it allows us to pay higher [real] wages,” said Vahram Bleyan, one of the founders of another company, Mamble. The company claims to be primarily selling software to a large corporate customer in the United States.

IT is the fastest-growing sector of Armenia’s economy, growing more than 20 percent a year over the last decade. The sector employing more than 15,000 people grew by almost 30% last year, according to government data.

Deputy Minister of Transport Amalya Yeghoyan predicted last week that this rapid growth will continue unabated this year. “I’m sure the number of jobs will increase,” she said, according to the Armenpress news agency.

The Government-Funded Business Incubator Foundation (FIE) estimates that the cumulative turnover of at least 650 IT companies operating in Armenia will reach $ 765 million in 2017. This figure, which includes the provision of Internet service is equivalent to 6.5% of Gross Domestic Product.

The largest companies in the sector include Armenian affiliates of US tech giants such as Synopsys, National Instruments, Mentor Graphics and VMware. Its steady expansion is also increasingly driven by Armenian companies in the country.

“Local businesses are now in better shape than they were five years ago,” the FIE said in a recent report. “They have more employees, attract venture capital investments and demonstrate improved technical expertise and market knowledge. In addition, they are implementing more complex and value-added projects. “

The lack of qualified personnel is generally considered as the main challenge of the sector. Local IT executives have long complained that many graduates of IT departments in Armenian universities have insufficient professional qualifications. They often have to take on-the-job training after graduation.

“It’s a problem,” Yeghoyan agreed. According to her, there are at least 2,000 vacancies in the sector.