IMF calls Moldova tax measures regressive and risky

by Reuters
Friday, 27 July 2018 10:30 GMT

By Alexander Tanas

CHISINAU, July 27 (Reuters) - The International Monetary Fund late on Thursday criticised Moldova's decision to cut taxes and offer an amnesty on registering assets, calling the measures regressive and risky.

The criticism could complicate Moldova's relationship with the fund, which supports the small eastern European country with a $183 million loan programme.

Moldova's parliament passed measures on Thursday and they are due to take effect from October. The ruling party says they are designed to cut the size of the shadow economy.

Moldovans with a monthly income of less than the equivalent of $95 will no longer pay income tax. An amnesty allows people to register assets without providing documents on how they acquired them, as long as they pay 3 percent tax.

"In IMF staff's preliminary view, the recently approved package of tax initiatives and capital amnesty are not in line with the objectives of the Fund-supported program," said Volodymyr Tulin, the IMF Resident Representative in Moldova.

"Specifically, the adopted measures will increase the regressivity of the tax system, could undermine tax compliance, and pose significant fiscal risks."

Parliament Speaker Andrian Candu said the measures would benefit poor and middle income people first and foremost, and denied the measures were designed to help the rich.

Moldova is one of Europe's poorest countries and blighted by corruption. In 2015, negotiations with the IMF and the European Union on funding were disrupted when it emerged the equivalent of one-eighth of national output had disappeared from Moldova's banking system, triggering an economic and political crisis.

The United States embassy in Chisinau said it was "extremely disappointed" by parliament's move.

"The law on voluntary declaration and tax incentives (called the law on amnesty of capital) legalizes theft and corruption, and also damages the business environment in Moldova," it said in statement.

"Citizens of Moldova have already suffered as a result of major financial crimes. Criminals should be punished, not encouraged. The people of Moldova deserve more," it said.

Veaceslav Ionita, from the think tank IDIS-Viitorul Institute, said the measures would deprive the budget of 2.6 billion Moldovan lei ($157 million).

"Naturally, this, to put it mildly, causes serious concern in the IMF," he said.

The ruling Democratic Party of Moldova has decided to hold elections next February after its mandate runs out in November. They will ask parliament to approve this decision later on Friday. Moldovan law allows the government to carry on for an interim period of three months before new elections. ($1 = 16.5300 Moldovan lei) (Writing by Matthias Williams; Editing by Jon Boyle)

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