Tofan outlines tax reform: low-income breaks and higher taxes on vices
The government plans to raise taxes on vices, offer tax breaks for lower-income individuals, and implement a system to ensure the Value Added Tax (VAT) does not affect household savings. Prime Minister Vasile Tofan shared an overview of the tax reform concept during a government meeting on August 5, which will be published on August 6.
"I believe everyone is eager to see the concept we will announce tomorrow. This reform is very important. The initial attempt did not go well, and we faced significant criticism from both society and the business community. We also made some mistakes in our communication. It's crucial to highlight the key points of this fiscal reform to foster economic growth. As the economy grows, we will likely see an increase in revenue for the budget," declared Vasile Tofan.
"The plan includes reducing taxes on labor, encouraging investments, increasing taxes on vices, and ensuring taxes are uniformly applied," summarized the Prime Minister.
No “envelope” salaries
The Prime Minister of the Republic of Moldova has highlighted the country's low labor participation rate, which is significantly below the average of other European countries. He emphasized the need to encourage people to join the workforce. Additionally, he pointed out the importance of stimulating tax payments and combating the practice of paying "tied-up" wages. To achieve these goals, he proposed two approaches.
"We can either increase the number of tax inspectors and labor inspectors to identify violations or restructure the tax system to make evasion less attractive," stated Vasile Tofan.
The aim is to motivate both the population and employers to pay their taxes, accompanied by tax reductions.
"If we can fix this mechanism, I believe we will encourage more employers to pay taxes in good faith, thus attracting more people into the workforce and minimizing tax evasion," Tofan explained.
The government's alternative vision includes raising the minimum wage to eliminate opportunities for tax evasion, where some employers declare an official minimum wage while providing the rest of the compensation "under the table."
Reinvesting profit back into Moldova, not in Dubai
The second key principle of the tax reform is to encourage business owners to invest in the economy of the Republic of Moldova.
"We must motivate businesses to reinvest their earnings here, rather than transferring them to Romania or Dubai. While I can appeal to a sense of economic patriotism, we also need to implement tax mechanisms that incentivize businesses to reinvest in the country," stated Vasile Tofan.
Increased taxes on harmful products
The Prime Minister indicated that the prices of cigarettes and alcohol may rise to discourage the consumption of these harmful products. Another focus area is gambling, where the state continues to collect revenue.
"We have both a fiscal and a social responsibility. Certain products are detrimental to health, and some issues cause family breakdowns," Tofan concluded.
Reduced VAT for vulnerable families
"I believe that the initial version of this tax reform was too ambitious and did not adequately consider certain economic vulnerabilities. Therefore, in the new version, we will approach it more responsibly, ensuring that we protect the most vulnerable households, particularly regarding VAT on food, gas, and energy," said Tofan.
On August 6, the government will present the updated concept of the budget and tax reform, which had faced criticism for its proposals related to taxing medicines, home purchases, and the cancellation of tax incentives for selling real estate.
