Moldovan government endorses positively draft law on tax changes agreed with International Monetary Fund

Chisinau, 09 August /MOLDPRES/ – The Cabinet of Ministers has approved, on 09 August, a project to amend several legislative acts, a project that provides for measures to consolidate the revenues of the National Public Budget (BPN) through new taxation. The tax changes have been agreed with the International Monetary Fund (IMF), which reached an Agreement that led to the release of the financing by EU.

"In 2018, there were adopted a series of changes in the budgetary – fiscal policy, which had significant effects upon budget indicators. The simultaneous implementation of tax reform, through which the tax rates were reduced and additional exemptions were introduced, and a new pay system, which significantly increased the personnel costs, created additional risks for budgetary stability”, states Ministry of Finance (MF).

According to its estimates, given that 2020 is not planned additional revenue from external sources, and "costs for personnel costs will be higher than originally forecasted, it is necessary to adopt measures to mobilise revenue and ensure budgetary stability".

Minister of Finance, Natalia Gavrilita, has said at the meeting of Government that the IMF was facing harsher conditions, but in some positions it was possible to reach a consensus, and there were renegotiated terms on the meal vouchers and air pollution tax in the last weeks.

The project envisages, in particular, elimination of personal exemption of individuals with incomes greater than MDL 360,000 yearly. Therefore, the person which has an income of over MDL 30,000 per month will pay an additional tax of MDL 240. In 2018, 4,891 persons had incomes exceeding MDL 360,000. Also, the ministry proposes to apply the general taxation to the capital increase, 100 per cent for legal entities, 50 per cent for individuals, thus returning to quota that existed until 2018.

The authors of the project propose to return to the standard VAT rate of 20 per cent for HORECA sector, compared to 10 per cent as it is currently applied. According to the MF's information and media communication service, in the first 05 months of 2019 compared to the same period of 2018, the VAT payments from 782 economic agents in HORECA sector (hotels, restaurants, cafes) analised decreased by MDL 22 million, although the volume of sales increased by 30 per cent.

Also, it is expected to be eliminated the exemption for estimated income by indirect methods. Currently, if the income estimated through indirect methods and sources exceeds the declared amount by less than MDL 500,000, it is exempted from fiscal obligations, says MF. Some persons hide their income through fictitious loan agreements. Similarly, the project envisages increasing taxes for environmental pollution by 20 per cent, cancelling tax amnesty, paying the social insurance contribution from the amount offered by employers as meal vouchers.

The transactions will be taxed through international postal items that have no commercial character of up to €200, compared to €300 at present. In Ukraine the threshold is €100 euros, and in EU countries – €22.

The estimated impact of these measures on the budget for 2020 will be MDL 669 million.

The trade unions, associations of employers, business associations and experts have ruled against these tax changes. Former Minister of Finance, the current advisor to the head of state, Ion Chicu, wrote on a social network that the recent IMF Agreement "will have serious consequences for the further development of our economy". The conditions imposed by IMF are not appropriate and relevant to situation, according to ex – minister.