RESOLUTION OF PARLIAMENT OF THE REPUBLIC OF MOLDOVA

of April 24, 1997 No. 1165-XIII

About the Concept of tax reform

The parliament accepts this resolution.

Art. 1. - Approve the Concept of tax reform it (is applied).

Art. 2. - To the government to take necessary measures for realization of provisions of the Concept of tax reform.

Art. 3. - This resolution becomes effective from the date of publication.

Appendix

to the Resolution of Parliament No. 1165-XIII of April 24, 1997

Concept of tax reform

1. Need of implementation of reform

The tax reform undertaken in the Republic of Moldova is intended to increase receipts in the budget, necessary for financing of state programs and development of service industry, to stimulate development of economy, to redistribute the income between various segments of the population.

Need of reforming of the taxation system is caused by the fact that it:

a) it is unfair - the tax load is distributed unevenly between the physical persons and business entities who are in identical economic conditions;

b) interferes with economic development and creation of new workplaces;

c) effective fund raising is not promoted, by state programs, necessary for financing, and service industry.

2. The overview of the operating system

The main sources of state revenues in Moldova are the value added tax (VAT), the excise duties, customs duties, the income tax of the companies, the income tax from physical persons, contribution to the budget of the national social insurance, and also the land tax and the real estate tax.

Taxation is performed by bodies of the State Tax Administration. The VAT and duties for imported goods are levied by bodies of customs control.

Income gained from the VAT, duties and customs duties goes for financing of the government budget while the income tax from physical persons, the land tax and the real estate tax are source of financing of local budgets. The income tax of the companies goes for financing both state, and local budgets.

2.1. Income tax

The income tax is levied in type of tax on profit of the companies, the income tax paid from the salary of workers and employees, and in type of tax on the income, paid by persons who are engaged in individual labor activity.

The profit of the companies is assessed with tax at the rate 32 percent. It is determined as the income less certain expenses. Fixed asset depreciation of the companies is calculated on the basis of rectilinear method according to which it is recorded each unit of fixed assets throughout all term of their useful service.

Number of business entities have tax benefits and releases. So, and to subjects of small business the tax holidays for a period of up to five years are provided to the companies with foreign investments; agricultural enterprises, except for the companies of industrial type, are completely tax-exempt on profit.

From most physical persons declaring of the income is not required: employers independently hold the income tax from the salary paid to workers and transfer it into the budget. Over 1,3 of one million workers and employees get to this category. At the same time the physical persons gaining income from individual labor activity whose number constitutes more than 30 thousand shall represent tax declarations annually.

The income tax is levied on tiered rates: from 10 percent from the annual income to 40 percent from the income exceeding 21600 pour into the 4320th leu in year.

2.2. VAT

The VAT acts in Moldova since 1992. The tax rate constitutes 20 percent. The tax base of the VAT is rather extensive. However different types of releases which considerably reduced tax base and complicated administration of tax were established in recent years.

The taxation of import and export is performed by the principles of the place of origin and the destination of goods. The goods imported from the CIS countries are exempted from the VAT while exported to these countries are subject to the taxation. Concerning other countries imported goods are subject to the taxation, and exported are not subject.

The system is complicated also by the fact that the VAT is calculated by two methods. Producers use method of the invoice, and in the sphere of trade in tax the trade allowance is assessed. In the majority of the countries at all levels of economic activity - from production before retail trade - the single method of the invoice is used.

2.3. Excise duties

Duties were introduced in 1992. For row of years the number of the goods which are subject to taxation by excise significantly changed. The inventory, assessed by excises, constituted from 20 to 60 names. For simplification of observance of the tax legislation and administration with preserving at the same time tax base as considerable source of the income the inventory which is subject to taxation by excise it was reduced and now constitutes 14 names, including alcoholic beverages, tobacco products, gasoline and diesel fuel. The excise duties are levied from the goods consumed within the country irrespective of, they are made in Moldova or are imported. In some cases the excise duties are levied from the exported goods, in particular to the CIS countries.

2.4. Land tax and real estate tax

The land tax and the real estate tax were entered in 1993. The amount of the land tax is determined proceeding from quality standard of the earth and the area of the parcel of land. Thus, receipts from the land tax do not reflect precisely market value of the earth.

The tax amount on the real estate is determined proceeding from its cost which also does not reflect the developed market prices, and the tax rate differing on the cities and regions of the country.

2.5. Contributions to the budget of the national social insurance

Most business entities deduct 35 percent from the salary fund in the budget of the national social insurance. Number of the companies and organizations pay tax on lower rate - from percent 4,5 to 30 percent.

2.6. Customs duties

Customs duties are collected from the goods imported from all countries, except for the CIS countries and Romania with which the Republic of Moldova signed contracts (agreements) on free trade. Thus, only part of all import is assessed with customs duties. Customs duties are not collected from the exported goods.

3. Level of tax revenues

In the provided charts information on evolution of tax revenues is provided in Moldova. In 1995 (the chart 1) tax revenues constituted percent 26,1 from the gross domestic product (GDP), and receipts in the budget of the national social insurance - percent 7,6 from GDP. Now tax revenues are much higher than indicators of last years.

Chart 1

Evolution of tax revenues (as a percentage to GDP)

+--------------------------------------------------+
|                     |          год               |
|  Вид поступления    +----------------------------|
|                     | 1992 | 1993  |1994  | 1995 |
+---------------------+------+-------+------+------|
|Поступления в бюджет |      |       |      |      |
|гос.соц.страх.       | 9,6% | 7.8%  | 7,1% | 7,6% |
+-

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