CHIŞINĂU (Imedia) - A draft law to apply a 13-percent flat income tax rate to individuals was presented on Thursday during a joint meeting of business associations in Moldova and the legislative commission on the economy, budget, and finances.  

Businesses and independent experts argued for the introduction of this flat tax rate four-five years ago, when they advocated the replacement of the current progressive system.

Employers asked for a 12-percent flat rate and for a personal exemption to be set at the minimum necessary for existence.

Experts, on the other hand, asked for a 14-percent tax rate.

Currently, taxable income up to 25,200 lei is subject to a seven-percent tax. Anything more than that is subject to an 18-percent tax. Annual personal exemptions make up 8,100 lei.

The draft law, which was proposed by businesspeople, involves a 17,400-leu personal exemption.

Commentary:

Veaceslav Ionita: I think this problem should be resolved

Veaceslav Ionita, head of the legislative commission for the economy, budget, and finances, says that he has been asking for a flat income tax for individuals for the last five years.

„I think this is a problem that needs to be resolved because it has to do more with fiscal administration than fiscal policy," Mr. Ionita argues. He stresses that this new proposal „could pass because it simplifies the collection procedure a lot and makes it fairer."

On the other hand, Mr. Ionita explains that the current income tax rate is an average of seven percent. He notes that some personal exemption set at the amount of money necessary for a minimum of existence will protect poorer parts of the population.

Sergiu Gaibu: Setting a flat rate will simplify taxation and fiscal administration

„The current tax rates do not reflect the social needs of the population and its division according to medium income and, therefore, medium levels of living, and low income and low levels of living," says Sergiu Gaibu, a financial expert.

He adds that setting a flat rate will simplify taxation and fiscal administration.

In addition, Mr. Gaibu suggests that a flat tax should be implemented because it simplifies income tax forms and reduces the risk of tax evasion.

The state could recover potential losses from lowering the maximum rate of taxation and the increase of personal exemptions up to the minimum necessary for existence by legalizing part of the income that is hidden by employers, the analyst explains.

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A project entitled The Objectives of Fiscal Policy for 2011-2013, proposed by the Finance Ministry, seeks the maintenance of progressive individual taxation for the next three years.

Income up to 25,2000 lei will continue to be subject to a seven percent tax, while anything above will be taxed 18 percent. The annual 8,100-leu personal exemption, the major personal exemption worth 12,000, and the 1,800-leu exemption for dependents could be replaced with a single exemption worth 13,704 lei.

This sum corresponds with the minimum amount of money necessary for existence set in the third trimester of 2009 and „will be updated annually depending on the evolution of this minimum."

Finance Minister Veaceslav Negruta has previously said that authorities would be talking about a flat rate for the entire year. „We will try to find a way to have a flat tax rate, not only for individuals, but also for every business or anyone with income, so that when we overcome the economic crisis in 2012 we can have a unique flat rate on the income of both individuals and businesses," Mr. Negruta explains.

The weight of fiscal income in the GDP that comes from individual taxes has oscillated between  2 and 2.4 percent in the last few years.

After 1998, when the maximum tax rate was 29 percent, it was gradually reduced to 18 percent in 2007.