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1. Functions of taxation 2. Taxation Elements 3. Taxation Principles and Forms 4. Tax Rate Establishment and Tax Collection 5. Types of Taxes The Taxation System of the RM
The Functions of Taxation
The functions of taxes are a manifestation of their essence; they are a means to represent the characteristics of taxes. The functions of taxation illustrate its social purpose of the valuebased distribution and redistribution of income. Each of the functions fulfilled by the taxation instrument is a manifestation of an internal feature, an indicator or trait or this economic category. There are five main functions of taxes: fiscal, redistributory, regulating, controlling, and promoting. 1) The main function of taxation is the fiscal one. It is through fiscality that taxes play their role in the formation of the state budget necessary for the realisation of national and holistic state programmes. The fiscal function provides for the achievement of the main social goal of taxation—the formation of the state’s financial resources necessary for executing the role of the latter (defence, social, environmental protection, etc.) 2) The allocation function of taxation expresses their essence as a special centralised instrument of allocation relations and consists of the social income redistribution among various groups of citizens: from wealthy to deprived ones, which ultimately provides for the assurance of the social stability of the population. 3) The regulatory function of taxation was initiated as soon as the state started to take active part in the economic set-up of the society. This function is aimed at achieving specific goals of the taxation policy through the taxation mechanism. Taxation regulation entails three sub-functions: a. The stimulating sub-function is aimed at the development of special socioeconomic processes, and is implemented through a system of allowances, exemptions and preference arrangements. The legislation in force stipulates the stimulation of a number of taxpayer categories such as the owners of small enterprises, the agricultural producers, capital investors, or charities. b. The destimulating sub-function inhibits some socio-economic processes through the conscious exaggeration of the taxation burden. As a rule, the effect of this sub-function is related to the introduction of excessive tax rates. These are, for example, the protectionist measures of the state, aimed at supporting local producers through prohibitive import custom duties. It is important to keep in mind, nevertheless, that taxation relations, as any other relations, must replicate continuously. Taxes must be collected today, tomorrow and always. This is why the utilization of the destimulating sub-function should not lead to the weakening of the taxation basis, to suppression, or even to liquidation of the tax source. Such an exaggeration may result in a situation where there will be no income/processes to be taxed. c. The replication (regeneration) function is explained as follows: by taxing the utilisation of natural resources, roads, mineral and primary resources, the state uses these proceeds in order to regenerate the exploited resources.
The former is the entity that initially pays the tax. who are social achievers (participants in wars. land and real estate rents. Taxation objects can be classified in the following way: income (income tax). wealth transfers (inheritance and gift tax). Earned income tax relates to salaries. In this context. Tax Allowances A tax allowance is a full or partial reduction of the taxation burden in correspondence with the legislation in force. ownership of wealth. foreigners. i. 5) The incentive function stipulates special taxation arrangements for a certain group of citizens. Temporary allowances are granted to adolescents. the transit of goods though a customs territory. Income taxation is divided into the taxation of earned and unearned income. wealth (real estate. In the international practice.. the system of allowances and reliefs has been formed a long time ago. or the import and export of goods (customs duties). the notion of the taxation subject. fulfilling taxation obligations in accordance to the ownership of the taxation object. conditions). works and services. is the notion of payer. according to the law. events. yet the real carriers of the tax are the consumers. The taxation object materializes as a result of legal events (actions. Every citizen of a state is a taxation subject. interest revenue. typical for the taxation instrument as a whole. fees of people engaged in freelance occupations. refugees. one should not forget about the distinction between the taxpayer and the tax carrier. is being taxed. It is possible to develop a certain systematisation of tax allowances. This function of taxation has a social facet. Permanent tax allowances are granted to people. . the income of individual juridical persons. This takes place primarily at the deduction of secondary taxes. the receipt of revenue in one or another form. Taxation Elements The Subject and Object of Taxation The unifying basis of all taxes in the RM and other countries are the taxation elements. for medical services that cost over a certain amount. Individual income is taxed only after it reaches a certain level (which is the non-taxable income). etc.4) The controlling function of taxation—through taxation.e. Taxation of unearned but legal income refers to dividends. expenditures for the support of infants and elderly. the state controls the financial-economic activity of juridical and natural persons. which affect the obligation of the subject to pay the tax: the sale of goods. These can be classified into permanent and temporary allowances. If the state has the right to deduct a part of the income.). One of the main elements. who are fulfilling other obligations or who have earned special merits with the state. for charitable donations and for education expenses are subtracted from the taxed income. the receipt of inheritance rights. Additional sums for the maintenance of each dependant. The taxation object is the object or phenomenon. this relates to the obligation of each citizen to offer a part of his/her wealth to the state. For example in RM. The taxation subject is the individual or company. taxation subjects are responsible for paying the VAT. capital expansion. which. This also contributes to controlling the sources of income and the directions of spending. land). and people without a permanent residence in the given state but who are there only temporarily. consumption (excises and VAT). the latter is the entity carrying the tax as a result of economic processes and transfers.
The tax credit takes the form of accounting for previously paid taxes and is used in order to avoid double taxation (a credit for foreign tax). In terms of content. i. The exemption from tax for a certain period of time is called a tax break. a part of it. Tax allowances are usually implemented through the taxation obligation of the payer. The tax amount can be reduced either partially or entirely.e. tax allowances are widely used as an incentive for exporters and foreign investors. which takes account of the specific traits of the payer and applies a reduced taxation burden. Tax allowances form an important element of the taxation policy and entail social and economic goals. factual and economic rates.Tax allowances provide for the financial-economic stimulation of the economic activity of the taxpayer through the reduction of the taxation burden obligations. Tax discounts are aimed at the reduction of the taxation basis. the rate that does not take into account the specific characteristics of the subject or the type of activity levied (ex. income tax for a company of 28%). which is also a reduction in the taxation obligation. There is also the reduced rate. or the exemption of the taxpayer from financial sanctions for a certain period of time. The factual rate is defined as the relation between the paid tax amount and the total amount of . there are marginal. Most often this happens in the form of discounts or relief from customs duties. Percentage rates are classified can be proportional. progressive or regressive. which again takes into consideration the specific activity type that leads to income creation and applies an increased rate. The process of appropriation removes certain objects from being covered by taxation. VAT 20%). Tax allowances include the following types: 1) The untaxed minimum 2) Exempting from taxation certain elements of the object 3) Exempting from the payment of taxes certain natural persons or categories of payers 4) The reduction of the tax rate 5) Full tax relief. Tax Rates and Other Elements of Taxation The tax rate is the size of the tax set per unity levied. Preferences are a special (preferential) type of allowance offered by one state to another on basis of reciprocity or unilaterally without impact on a third party. Tax rates can also be classified as follows: • Value added rates—expressed in percentages (income tax) • Specific rates—expressed in a monetary form in conformity with the physical features of the objects levied (ex. Tax credits are allowances aimed at the reduction of the tax amount and of the taxed sum. Tax amnesty is the return of the paid tax sum. in the sphere of international economic relations. but sometimes this is done through the extension of the payment deadline. For example. for a limited or unlimited period of time. Depending on the influence on the results of taxation. A marginal rate is indicated directly in the taxation legislation (ex. In this case the size of the sum accounted for should not exceed the taxation sum payable in the Republic of Moldova. and the increased rate. discounts can be divided into limited discounts (the size of the discount is limited directly or indirectly) and unlimited discounts (the taxation basis can be reduced up to the full amount of the payer’s expenditure). Appropriation can be relevant permanently or temporarily. the land tax). for all taxpayers and for certain categories. Preferential regimes are established by developed countries towards developing countries in the framework of the Global System of Preferences. There are fixed and percentage rates. and others. It is important to emphasize the notion of base (main) rate.
which promotes the universality of taxation and the evenness of tax distribution among citizens in correspondence with their revenues (“the subjects of the state must participate in the maintenance of the government in correspondence with the income that they make use of under the protection and with the help of the state”). the source of the tax payment can only be the net income (profit) or the capital of the taxpayer. in this case the approach is connected to the structure of budget expenditures.income received. the object of the land tax is land ownership and the taxed item is the specific piece of land. The principle of justice. the taxable profit can be expressed directly in monetary units. In the international practice. taxes paid must correspond to the benefits received by the taxpayer from the services of the state. who is obligated to take part in financing a corresponding share of the state’s expenditures. The comparison of economic rates most adequately represents the consequences of taxation. i. there are two methods of implementing the justice and equality principle. etc. Thus. the taxation object for car owners is the car itself. Each entity must pay its share in accordance with the capacity to pay. Smith. Tax payment deadlines are dates indicated in the law. not all of it will serve as the taxation basis.e. when payments have to be made to the state or local budgets. The source of tax payment is a resource used for paying the tax. to which a tax rate is applied in correspondence with the law. In a number of cases the taxation basis is factually a part of the object levied. the financing of education. In contrast. The source is different from the object and does not always correspond to the latter. In order to measure the object. Irrespective of the taxation object. The first method entails insuring the benefit of the taxpayer. For example.e. The taxation basis is the part of the taxation object expressed in levied units. to determine the measuring unit of taxation. Usually these two approaches complement each other when a taxation system is elaborated. when income is taxed. but only a part of it—the taxable income. In these cases. Different countries have various parameters of levying: in France it is the power of the engine. the taxation basis cannot be determined as the part of the taxation object. in Germany—the volume of the operating cylinders of the engine. According to this approach. i. The second approach depends on the capacity of the taxpayer to pay taxes. this leads to the creation of the best possible conditions for the implementation of this principle. it is necessary to first select some physical feature. as well as to extra-budgetary funds. Taxation Principles and Forms Classical Taxation Principles A number of principles that characterize taxation in general and the taxation system more specifically were set forth by A. This principle means that taxes must be deducted in conformity with the capacity of the payer. the majority of the taxation objects cannot be expressed directly in taxation units. the taxpayer receives back a part of the tax paid through various transfers from the state budget covering compensations. to which the tax rate is applied. health protection. For example. Thus. in Holland—the weight of the car. These are: 1. But this is relevant only in the cases where the taxation object is directly conducive to and allows for a calculation measure. . Hence. irrespective of the identity of the taxpayer who missed the deadline. Missing the deadline automatically leads to penalties.
”) Modern Taxation Principles The analysis of classical theories allows the formulation of principles that represent the qualities and tendencies of the modern taxation system. The thrift principle implies the reduction of deductions from the tax amounts. They are: 1. the taxation system must be flexible and should easily adapt to the dynamic socio-economic conditions. which requires the exact determination of the sum payable. The application of a tax allowances system. 3. organizational or juridical structure of the entity. On the other hand. increased and differentiated rates. 6. It is not acceptable to introduce additional taxes. the payment method and deadline (“the tax. In periods of economic crisis it is better to have many sources of budget revenue with a relatively low rate and a large taxation basis then to have 1-2 types of income with high deduction rates. economic. or tax allowances for different types of ownership. The universalization of taxation which implies equivalent efficiency requirements to all payers and an equivalent approach to the deduction of the tax amount irrespective of the income source. which each individual is obligated to pay. which implies the utilization of various types of taxes. or economic sector. The principle of determination. citizenship of natural persons or other factors. 4. must be determined exactly. nor should it be transformed into an individualization of rates. in the rationalization of taxation.2. In addition. Allowances should not be established for certain payers only—they should be the same for everybody. The sums collected through each individual tax should exceed the expenses for their collection and service (“each tax must be conceived and developed in such a way that it deducts from the pocket of the people as little as possible in addition to what it brings to the state treasury. or the endurance of taxation for a long period of time and the simplicity of deducting the payment. . The scientific approach for the determination of the exact tax rate. 3. which contradicts the basic principles of the market. The system and procedure of tax payment should be comprehensible and convenient to the taxpayer. which would lead to an actual stimulation of investments into entrepreneurship activities and would. One-time taxation implies that one object can only be taxed once through one tax type for a specific period of time indicated in the law. taking into consideration both the wealth and the income of the taxpayer. 2.e. It is not acceptable to set the tax rates on basis of short-term interests of insuring state revenues and to the detriment of economic development or to the interests of the taxpayer. including the insurance of a minimum living standard of the citizens. Differentiation of tax rates in accordance to the level of income. and ethnic factors. comply with the principle of social justice. Tax rates should be determined by law and should not be revised frequently. which should not develop into an inhibitive progression (i. at the same time.”) This implies that the main types of taxes and tax rates are fixed for a number of years. The magnitude of the tax burden should allow the normal functioning of the taxpayer after paying the tax amount. which implies setting the deduction rate at a level that would allow the subject to have an income necessary for normal development. 7. Stability. or other criteria of this type. 4. The principle of convenience implies that the tax should be deducted in the manner and at the time most convenient to the payer. type of activity. The rational combination of direct and indirect taxes. taxes should not be established or applied on basis of political. a significant increase in tax rates). 5.
3) The low rates applied through proportional taxation lead to a reduction in tax evasion. With the simple progression method. where the size of the rate is determined in accordance with the rate of income increase. yet the increased rate does not apply to the entire income. Discretionary income is defined as the difference between the total amount of income obtained by the payer and the untaxed minimum income. and represents a unilateral unequivalent compulsory deduction though power of a part of the individual or corporate income for the general use of the state. progressive. this approach is not acceptable. Proportional rates are equal for all the levied objects. Internationally. The final goal of redistribution must be the maximum satisfaction of social needs 3. Redistribution should be implemented to the interests of all the participants in the economy and with the strict recognition of the equality between the various types of ownership with the purpose of creating a competitive economic environment. the lower the rate that needs to be established by the state for the collection of a certain tax. but only to the sum that exceeded a certain level (income tax for natural persons). Progressive and Regressive Tax Rates Progressive rates increase with the increase in the taxation object. a developed taxation system of a country cannot be transposed to other countries directly because taxation depends is basis-oriented and the economic basis varies from one country to the other. i. organisational. in accordance with a tax rates ladder. In current conditions. However. Percentage rates are divided into proportional. The advantages of this method are: 1) The larger the taxation basis. and legal relations formed on the basis of the objective redistribution process of value. economies are divided as developed and developing. 2) A limited number of rates: it is well known that in the case of progressive taxation multiple rates for one level makes high income unbeneficial and reduces the incentives for income expansion. this is why it became very popular. Complex progression is opportune for payers with high incomes. Only factually created value should be included in the process of redistribution 2. Taxation can also be developed or developing. Taxation should comply with the following requirements: 1. Progressive taxation is defined through an increase in the tax rate in conformity with simple and complex progression. This is the reason why such rates are related to the size of the minimum wage. we usually face percentage rates. Fixed Rate and Proportional Taxation Taxation rates can be represented in fixed sums or in percentages. . there are fixed sums rates (ex. and regressive. However. an increase in income leads to an increased taxation rate of the entire income.The Essence and Form of Taxation Taxation is the entirety of economic (financial). excises or the land tax).e. There are three types of taxation: proportional. but taking into consideration the rate inflation. Such a mechanism is used for VAT deduction. Progressive taxation is related to the notion of discretionary. or free income. With the complex progression method. Redistribution should not only maintain but also increase the profitability of economic sectors 4. progressive and regressive rates. a specific ladder taxation is applied. preponderantly in monetary form. the rate does not change in accordance with the object levied.
the tax collection method is established. income tax in the RM). Tax Collection Methods There are three tax collection methods: cadastral. real estate) classified according to physical features and where the average profitability of the object is determined. The tax obligation is the condition that obligates the taxpayer to pay the given tax or charge and grants the taxation authorities the right to demand the fulfilment of this obligation by the taxpayer. for the . wealth. it is necessary to identify the taxpayer of the given tax and the source to be levied (the cost or the profit). Next. sale of merchandise etc. at the source (before the receipt of the income) and through self-assessment (at the declaration of the income). It is acceptable to exchange tax and state obligations between the state and a certain taxpayer. which usually takes the form of a fine. it should be remembered that one object cannot be taxed through multiple taxes or charges. The payment is executed in cash or through a bank account in the national currency. The taxation basis and the method of its determination. the taxation authority has the right to block the operations of the indebted person by freezing the bank accounts or by arresting the person’s property. and to unconditionally subtract the tax amount from the bank account funds or from the sale of the arrested property. If the payment deadline is missed.A mixed taxation method is used in practice. Tax payment is the obligation of each taxpayer. If the taxpayer does not comply with the request of the taxation authority to pay the tax or charge amount. The cadastre is a register of all the typical objects (land. The fulfilment of the tax obligation is mandatory and is executed irrespective of other obligations that the taxpayer may be subject to. except when indicated in the law) together with the calculation method of the tax. Regressive taxation is the method where an increase in income (the taxation object) leads to a decrease in the taxation burden (this applies to indirect taxes).. Physical features include: for the land tax—the size of the land area. or duty stamps. as well as the tax rates and payment deadlines are determined for each tax or charge in the law on the given tax or charge. the exact taxation object is determined (income. The methods of payment are cash. The cadastre method implies the use of the cadastre. bank transfers. the distance from transportation ways and markets. The financial relations between the state and the taxpayer are reflected in the tax obligation. Then. The fulfilment of the tax obligation is achieved through paying the established tax or charge amount within the stipulated deadline. a penalty is applied. This method implies using the progressive method for one part of the object and the proportional method for the rest of the object (ex. Full or partial tax evasion constitutes sufficient grounds for applying a punishment to the taxpayer. Surplus payments or subtractions can be directed for upcoming taxes payable. This obligation covers the entire wealth of the taxpayer. Tax Rate Establishment and Tax Collection Tax Rate Establishment and Tax Collection Procedures When introducing one or another type of tax. The tax rate depends on the sum that needs to be collected and the number payers.
In this way is deducted the tax from wages and salaries. which pays the income of the taxation subject. which excludes the possibility of tax evasion. 2. 2. The average profitability of the object. may differ significantly from actual profitability. Collection at the source is done for taxing income of employed personnel and for other relatively fixed incomes. 2) payment by the taxpayer at the due date on basis of self-assessment at the time or after the presentation of the income self-assessment: the tax payer independently subtracts the tax amount and transfers it to the state. This method entails a number of variations: 1) in advance payments during the taxation period. Taxation authorities. inheritance and gift tax) Consumption tax (VAT. land. which defer from one another in form and content. In accordance with the taxation object Income tax (profit tax. real estate tax. 2. verify the accuracy of tax calculations. taking into consideration the size of the taxation object and the taxation rates. this constitutes the main disadvantage of this method. which is based on physical features. an official statement about the income received. Tax collection at the source implies collection before the receipt of the income by its owner. real estate tax. 1. aimed at the formation of the state budget Limiting (excises and customs duties) . The tax is subtracted by an intermediary—the collector (tax agent) before the receipt of the tax by the subject. Taxation at the source is calculated and deducted at the accounting unit of the company. In accordance with the collection method: Direct taxes which are determined directly for the income or wealth (income tax. when the state receives an approximate amount estimated on the basis of the income earned during the previous period or on basis of the tax paid. for industry tax—the number of employees and machines. tax classification is done according to various criteria: I. II. In accordance with the objectives set: Fiscal. Tax collection upon self-assessment represents the deduction of a part of the income after its receipt and implies that the taxpayer submits to the taxation authorities a selfassessment. 3) additional payments determined by the tax authority required after the examination or verification of the submitted self-assessment. Selfassessment collection is convenient for the taxpayers because it creates conditions for tax evasion due to the weakness of the taxation apparatus and due to commercial confidentiality. excises and the customs duty). the type of the building. In practice. 3. pipes. excises. customs duties) III. Types of Taxes Principles of Tax Classification The existing taxation system includes various types of taxes. The same method is used in other countries for the income of joint ventures. In RM this method is used for land tax. doors. individual tax. income tax for natural persons) Taxes on wealth (individual tax. and others) Indirect taxes which are applied to goods and services in the form of an addition to the price or tariff (VAT. i.house tax—the number of windows. 1. This method is usually applied for the taxation of non-fixed revenues and for the cases when the taxpayer has multiple income sources. 1.e.
determined by state legislation. wealth tax. for covering the expenses of the state. to the price of which the tax is added. and their deduction does not depend on the individual financial capacity of the taxpayer (land tax.e. and industrial tax. Yet. . individual taxes take into consideration the financial status of the taxpayer and his/her capacity to pay (profit tax. natural resources charges). land tax. the buyers of various goods usually do not know exactly when and how much they are paying to the state through indirect taxes. while the final payer of the indirect tax is the consumer of the good. the payer can determine the exact tax amount. the area of the processed lands. Direct taxes are divided into real and individual ones. natural resources charges and local charges. and others. special extrabudgetary funds are created for the special purpose taxes and a special article for this type of tax is introduced in the budget law itself. Direct taxes are divided into real and individual ones. as well as the strictly applied deadlines. 1. while indirect taxes are applied to the consumption of valuables. As a rule. VAT. In correspondence with the payment indices: direct taxes are paid and carried by the same entity. In this context.e. the most important development was the transition to taxing land profitability determined according to the cadastre (the land register that accounted for land fertility). individual tax and charges for the Road Fund. excises. Real taxes comprise the land. In accordance to the purpose of utilization: General taxes are amalgamated and transferred to a single state account. 2. On economic basis: direct taxes are subtracted from the production of valuables. This criterion is based on the assumption that the final payer of the direct tax is the owner of the taxed property or the earner of the taxed income. IV. from income or wealth. transferred into the state budget and applied in the same way for the entire territory: income tax. In contrast. an accurate determination of the purchase price of land. individual income tax. they are directed for general state programmes. i. including the number of ploughs. which deducts the tax and disposes of it: State taxes. the tax rate. Local taxes collected by the local authorities of the corresponding territory and transferred to the local budget: real estate tax. the mechanisms for direct taxation appeared earlier tat those for indirect taxation. the tax for returns on capital). Direct taxes are the most progressive form of taxation because their deduction takes into consideration the income and family situation of the taxpayer. having appeared later than the direct taxes. The criterion for dividing taxes into direct and indirect ones is the possibility to transfer them to the consumer. General taxes encompass the majority of the taxes in any taxation system. housing. however. These criteria did not allow. 2. Direct Tax Characteristics Chronologically. This is when the land tax was introduced in Europe. In accordance with the taxation subject—individual and corporate taxes V. Various methods were used for the calculation of this tax. There are two methods for distinguishing direct and indirect taxes: 1. for indirect taxation. real estate tax).1. Special (purpose) taxes have a strictly defined purpose and are aimed for a certain type of expenditures (land tax. Direct taxes constitute the basis of the taxation system. Real taxes are applied to the sale. Real taxes were widely used in the period when land was the main form of wealth. i. road tax. VI. purchase or ownership of wealth. while indirect taxes are carried by one person and paid by another one. customs duties. Historically. 2. In accordance with the entity. When paying direct taxes. indirect taxation mechanisms are transformed into a more palpable channel for the provision of state budget revenues.
the work force. and customs duties. Customs duties are applied in most countries only to imported goods. and customs duties. import and transit duties. indirect taxes include the VAT. the state limits the consumption of products that are dangerous for health. In the second half of the 19th century. direct taxes include the income tax. number of doors. Indirect taxes are the simplest to collect and are also difficult to evade by the taxpayer. objects are considered individually for each payer. These taxes are also attractive to the government for the reason that their receipt does not depend directly on the financial-economic activity of the taxation subject. This is most advantageous for the countries that face economic progress. and windows. buildings became an important taxation form. Excises can be either individual or universal. state fiscal monopoly. and the fiscal effect is achieved even in conditions of production downfalls and unprofitable periods of enterprises. the state has to apply direct taxes as well such that taxation covers as many activities of the taxpayer as possible: processes that create the material and technical basis for economic activities. exporting goods is not taxed through a customs duty. Indirect taxes make up 55% of the total budget revenue. Indirect Taxes Characteristics The formation of the budget revenues entails the collection not only of direct. The size of this tax was determined on the basis of the following criteria: number and purpose of rooms. Indirect taxes are applied to goods and services and take the form of an addition to its price or tariff. real estate tax. this is why the house tax was introduced. family situation and other factors. independently of their income pay indirect taxes because they consume goods and services necessary for survival and which are chargeable to indirect taxation. Indirect taxes are divided into excises. Customs duties are classified into export. All the citizens. and the income. However. the resources used in production. road charges and the state tax. salt.With time. This involves taking into consideration the size of the income. a transition to individual taxes started to happen. which is used in the world taxation system since the end of the 60-ies. land tax. The advantages of indirect taxes include the following: 1) They increase the state revenue as a result of an increase in the population number or in its wealth. excises. At the same time. matches. Individual taxes are income or wealth taxes collected at the source or on basis of a selfassessment. the wealth of enterprises. A good example of a universal excise is the VAT. while in developing countries—the opposite occurs. Individual excises are applied to certain types and groups of goods. these criteria could not insure the fairness of taxation. In the RM. This creates a rather stable inflow of tax payments and also increases the causality between the amount of taxes paid and the effectiveness of the taxpayer. spirit). 2) By influencing the consumption rate through increasing the price of one product or another. For the collection of individual taxes. . In the RM. In developed countries the relative weight of indirect taxes is usually lower than that of direct ones. The payers of indirect taxes are the buyers or the consumers. Fiscal monopoly taxes are applied for the state production of goods (ex. this is why the level of income and the family situation started to be taken into consideration. The largest part of indirect taxes is transferred into the state budget. Usually. while most of the direct taxes are transferred into the local budgets. but also of indirect taxes. In most countries import taxes constitute the largest part of customs duties.
For the income tax there is an untaxed minimum. as they are added to the price. according to the rate. 4) For the consumer. corporation profit tax. to their rates. determined through the method of complex progression. The evolution of indirect taxes.3) Taxes are received as a payment for the good. In the beginning. is a general tendency covering essential as well as luxury goods. according to many experts. a part of the taxpayers’ income is not taxed. applied to the entire income of the taxpayer. In unitary states the taxation system includes two elements: state and local taxes. The global system. methods of collection. This system has been applied for a long period of time (1842-1973) in Great Britain and a number of other countries. This tax is collected by using progressive rates. i. income tax . The schedule system (or the English system). political. it is necessary to make a review of these countries’ taxation systems of. are related to the state budget. The Taxation System of the RM The Concept of the Taxation System The taxation system represents the totality of various types of taxes. however. magnitude and quantity of allowances offered. This taxation system involves taxation at the source of income not on the entire amount but on parts of the income. or instead of taxing a large number of items it concentrated on a selected few.e. The main taxes. In most countries the income tax was introduced in the 20th century. fiscal authorities from various levels. The existing taxation system of developed countries includes a large number of taxes and its structure depends on the organization of the state. all the countries follow some general principles. Since the taxation system of the RM was built following the framework of developed countries. In the years of the World War II. which represents an income tax. This is why it is natural that taxation systems of different countries vary in the types of taxes used. the elaboration and calculation of which relies on certain principles. which result in the highest collections for the budget. as well as other indices. a global taxation system is applied. The international experience has proven that the highest level of taxes is collected through the income tax (from 25 to 45% of the state budget). VAT. There are two systems of applying the income tax: 1. taxes related to the federation subjects (regional taxes). and local taxes. Yet. indirect taxes are convenient for the following reasons: • Insignificance of the amounts paid • Time convenience • The lack of a constraining factor • The lack of time requirements for making the payment • Does not require the accumulation of a certain sum. which allow the creation of optimal taxation systems. The taxation systems of most countries developed throughout centuries under the influence of various economic. a large number of citizens did not pay this tax because the untaxed minimum was set at a very high level. In federal governments the taxation system includes three elements: state (federal) taxes. and social conditions. excises and customs duties. Currently in western countries. 2. They include the income tax. The Notion of a Taxation System. according to the structure of taxes.
Israel and a few other countries. principles. Ministry of Finance. Among indirect taxes. The system of national taxes includes: . The Taxation System of the Republic of Moldova The taxation system of the RM is the aggregation of taxes. The taxation legislation of the Republic of Moldova consists of the National Constitution and other legislative acts approved in correspondence with the constitution. a taxation reform was introduced. The taxation legislation changes and adapts to market relations and new economic conditions.became universal. This tax constitutes 30 to 50% of all the indirect taxes. presidential decrees. This is related to the constant rise in tax allowances and to the decrease of profit tax rates. very high tax rates were established (in USA the maximum rate reached 91%). the share of customs duties decreased significantly due to the GATT and WTO. the provisions of the Taxation Code are apply. which regulate the taxations relations between enterprises and the population on the one hand and the state on the other hand in the process of creating the budget revenues. In 2000. and on 01. In the RM there are national and local taxes. the rules of the international agreements apply. forms and methods of their determination. After the World War II. GNS on the basis of.1998 the third section. as well as logistical matters of tax collections and payment control. VAT is not implemented in the USA. Taxes (duties) are mandatory. Charges are the mandatory. rights. And also. Ministry of Finance letters. In order to promote the legal functioning of the taxation system. obligations and responsibilities of the taxpayers and taxation authorities. right after the war. unrefundable payments that are not taxes or duties. in the beginning of the 80s. If. modifications and annulments as well as measures for insuring actual payment set forth in the Taxation Code. These laws entail the principles of the taxation system. These are “General Provisions” and the “Income taxation” sections. Then. scientific research expenditures and capital investments. In case of divergence between the provisions of the Taxation Code and those of other taxation legislative acts regarding the granting of real allowances. Taxation Legislation Taxation legislation is the aggregation of all the legal financial documents including legislation acts. VAT is used in all countries of the EU. for reasons of avoiding double taxation through international agreements to which the Republic of Moldova is a party. Taxes. VAT and excises are the most important. In the last few decades a continuous decrease in the share of the profit tax in the budget revenues can be noticed. The main tax allowances applied to corporation profits are the fast track depreciation. and charges.07. which led to a significant decrease of the tax rates. as well as in Norway. government resolutions.01. another two sections were approved: section 4—“Excises” and section 6 “Real Estate Taxation.” Entry into force of these sections was assigned for the years 2001 and 2005 respectively. charity expenditures deductions. unrefundable payments unrelated to certain actions of the authorised body or person in favour or in connection to the taxpayer. duties. other provisions are stipulated. its structure. dealing with the VAT entered into force. and in compliance with the Taxation Code cannot contradict its provisions and surpass its frameworks. duties and charges deducted in accordance with the TC and with other normative acts constitute a part of the national public budget.1998 the two first sections of the TC came into force. in 1992 the Law on the Basis of the Taxation System was adopted. while on 1. Normative acts approved by the government.
examines letters. Charges for the right to organise local auctions and lotteries 5. Charges for retail activity rights on the border zone 16. • Organises awareness-building events and explains the legislation on taxation and other payments to the state budget and extra-budgetary funds. the completeness and punctuality of tax and other payments to the budget. • Verifies the work of subordinates of taxation inspectorates. Natural resources charges 3. Executing the decisions of the local authorities regarding the calculations of the local charges and granting of tax allowances . Charges for the right to transport passengers 17. Charges for the establishment of retail units 9. Market charges 10. for the disposal of solid household and industrial waste. in the unitary State Taxation System are included: • The General State Taxation Inspectorate (GSTI) adjoining the Ministry of Finance • The territorial taxation inspectorates The main purpose of the taxation inspectorates of all levels is to verify the compliance with the taxation legislation. Hotel charges 6. the accuracy of calculations. Spatial planning charges 4. the completeness and punctuality of tax and other payments to the budget. Charges for the right to make television and film shoots 14. for the utilization of containers. In accordance with the law “On the state taxation service” from 1992. Charges for the sanitary maintenance of the territory. Car parking charges 11. Charges for the utilization of the local logo 8. Insuring the completeness and punctuality of accounting by the payers of all types of taxes and other payments 2. Dog ownership charges 13. Real estate Tax 2. the accuracy of calculations. and complaints and takes measures for increasing work effectiveness. Resort charges 12. Charges for the right to cross the border 15. The Taxation Apparatus A special taxation apparatus deals with taxation and tax collection issues.• • • • • • Income tax VAT Excises Individual tax Customs duties Charges for the Road Fund The local taxation system comprises: 1. Territorial taxation inspectorates fulfil the following functions: 1. The GSTI of the Ministry of Finance fulfils the following functions: • Organises inspectorate subordinates in executing the work of verification the compliance with the taxation legislation. Advertisement placement charges 7. declarations.
declarations and complaints of payers of all types of taxes and other payments. examines letters. .3. Explaining the legislation on taxation and other types of payments to the budget and extrabudgetary funds. were unidentified or have been inherited by the state 5. 4. the completeness and punctuality of tax and other payments to the budget. evaluation and sale of goods that have been confiscated. Organizing the registration. Verifying the accuracy of calculations.
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