Democratic Party of Moldova

Press realise

24 July 2018

Governing coalition launches important tax reforms to increase the quality of people’s life and improve the business environment

Governing coalition launches important tax reforms to increase the quality of people’s life and improve the business environment

The ruling coalition has today decided to launch a package of initiatives to increase the quality of people's life, but also to improve the business environment. Prime Minister Pavel Filip announced after the Coalition meeting that there are many initiatives that have been publicly discussed, but they needed some adjustments following the recommendations of development partners.

The Prime Minister pointed out that the government is now starting important tax reforms to lay the foundation for a fairer system of paying salaries, raising citizens' incomes and facilitating economic activity. “We have identified the solution for two issues that are of great concern to us - reducing the shadow economy and stimulating the business environment. People are always demanding jobs, but we are not the ones who create them. We create policies, and if the policies are good, the investors offer jobs”, Pavel Filip said.

According to Pavel Filip, the tax reform contains important changes in the taxation of wages, changes that will make more money to stay in the pockets of people each month. In order to achieve this, a single rate of 12% will be introduced for the income tax of individuals. As a result, we will give up the rate higher than 18%. At the same time, the annual personal exemption will increase more than twice - from 11,280 MDL, currently, up to 24,000 MDL. Consequently, the subsistence minimum will not be taxed, which is a first run for our country. Therefore, citizens who receive a minimum wage will no longer pay tax.

It was also decided to reduce the contribution of the private sector employer to the State Social Insurance Budget by 5 percentage points - from 23% to 18%.

“These changes will automatically result in an increase in citizens' income, but at the same time, our goal is to gradually reduce the tax burden on wage payments, one of the factors that stimulate the shadow economy”, the Prime Minister explained.

In addition, within the tax reform, the Government will come with VAT reduction from 20% to 10% for services in the HORECA industry, including restaurants, hotels and cafes. “It is a way of stimulating activity, but at the same time we hope to reduce the shadow economy in this industry”, Pavel Filip argued.

Similarly, a new tax system is proposed for those providing taxi services. Thus, employees who receive a monthly salary of up to 10 thousand MDL will pay a fixed monthly tax of only 500 MDL and the monthly payments for the compulsory medical insurance and the social contribution will make up the 12th of their fixed amount, established by the Government for that year. The costs for the repair of cars that work as taxis will be deductible 100%.

Pavel Filip also pointed out that the taxi drivers would be obliged to issue the receipt, and if this is not issued and handed over, the traveler has every right not to pay for the trip. At the same time, the fines are increased for the illicit practicing of this activity, namely, without a license.

Another point of the tax reform is the one related to the repatriation of currency, which will reduce the pressure on the Moldovan economic agents, who carry out external economic transactions. Thus, it is proposed to increase the repatriation period from 2 to 3 years for the results of all types of external contracts (money, goods, services). Another objective pursued by the draft law is the proposal to reduce late payment penalties - from 0.1 percent to 0.05 percent of the amount of the funds, which are not part of repatriation, applied for each calendar day of delay.

As part of the fiscal stimulus package, improving the business environment, creating new jobs and increasing the incomes of citizens, the initiative on voluntary declaration by citizens of their real estate, cars and other goods as well as money amounts was launched. It is about the values that have not yet been declared or have been placed on behalf of intermediaries. “Through this project, we will enable people to enter into law, declare their goods fairly and pay for them a 3% tax. But those who hold or have held the following positions since 2009: presidents, deputies, prime ministers, ministers, judges, prosecutors, directors and deputies of State Agencies and Services, including all heads of private banks that have been liquidated, and even those persons who have benefited from fraudulent loans from these banks will not be able to benefit from this voluntary declaration. The legislative initiative will be very clear in this respect, so that there is no risk that the values ​​of the offenses will be legalized. The state institutions will pay more attention in this regard”, Prime Minister Filip assured. The package of initiatives also contains tax incentive measures, which provide the forgiveness of those who have older debts to the state and who will pay them within a set deadline.

The Governing Coalition also agreed on legislative changes to reduce the pressure of state institutions on the business environment. Proposed measures include stricter regulation of controls and searches, increasing the threshold for tax evasion as an offense from 75,000 to 300,000 MDl, restricting the use of preventive arrest to more serious cases, or establishing legal liability for state officials who unreasonably refuse or delay to release permissive acts.

Another topic discussed today at the Coalition meeting is the draft law on compulsory medicine. According to this draft law, GPs will be able to go free practice for the first time. Funding will be provided based on the number of patients and additional services. “We know the problem of lack of doctors in the villages, and this project comes to offer the solution. It is an alternative to the current medical system, which will provide healthy competition in the field. The one who will be good will have more patients. The implementation will start from district centers. The aim is to ensure qualitative medical services in every village of Republic of Moldova”, added Pavel Filip added.

Non-affiliated deputy Stefan Creanga, a member of the Governing Coalition Council, added in the press briefing that the necessary consensus was reached for this reform to be discussed within Parliament. At the same time, he stressed that the proposed measures were coordinated with the development partners. “We are in the last talks with the International Monetary Fund, so that we can get fully support of the proposed reform. We expect these measures to be applied from October 2018, and the impact will be felt by citizens within 4-5 months”, Stefan Creanga said.