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development of the theoretical knowledge in the field of taxation. The taxation problems are playing an important role within the market economy. Taxes, as obligatory and non-repayable payment, set by the legislation, constitute the main source of state revenues formation. The government uses tax rates and tax privileges to stimulate the development of certain industries, to influence the consumption structure, to encourage the investments in development of the national economy. By using the taxation the government is able to implement purposefully the social programs and finance other needs of the country. Proceeding from this, it is determined the importance of studding the disciplines “Introduction to taxation” and “Taxation”, that provides the knowledge of basic notions about the taxation and taxation systems. This set of lessons was elaborated in such a way that allows covering the theory of taxation, i.e. its economical content, functions, elements, principals of their levying and the classification of taxes as well as the taxes role in the conditions of marker economy, putting the accent on the particularities of the taxation system in the Republic of Moldova.
Lecture 1. Taxation-the Concept and the Science 1. Origins and historical development of taxes 2. Economic content of taxes 3. Functions of taxation 4. The role of taxation in modern states 5. Theories about state regulation of the taxation system Part 1. Origins and Historical Development of Taxes Taxes form an element of the social existence. Human society is heterogeneous for natural and physiological reasons. Already in antiquity this made people unite their efforts and wealth for the purpose of responding to natural disasters and external enemies, as well as in order to build common towns, to support the people not able to work and to provide for many other social needs. Taxes constitute an integral attribute of the state. Taxes became a necessary element of the socio-economic relations at the formation of the state. The development and transformation of the state’s organisational forms were always associated with a modification of the taxation system. In the periods of slavery, states used taxes in the form of natural charges and duties (i.e. by collecting food, harvest items, etc., of personal obligations), but with the development of commodity-monetary relations, taxes took a monetary form. Primary taxes were initially applied directly on wealth through land and individual taxes. Secondary taxes appeared later, initially in the form of internal customs charges, and with the development of commodity-monetary relations, in the form of excises, which were paid by all the free individuals. In Ancient Rome, during peace times there were no taxes, but in times of war, citizens were subjected to taxes applied in accordance to their wealth. The tax rate (or the census) was determined once in 5 years. In the IV-III centuries B.C. the Roman state was expanding, new towns-colonies were being conquered and the taxation system was changing as well. Community (local) taxes and duties were being introduced in the colonies. Rome was becoming an empire. The main source of income for the Roman provinces was the land tax; on average its rate constituted 1/10 of the revenue from the land area. Other taxation forms were also used, for example, the tax on fruit trees or vine plants. In addition, chargeable to taxation were real estate, live assets (horned cattle and slaves), and other valuables. In addition to direct taxes, there were indirect ones, the most important of which were: -Transactions taxes, usually at the rate of 1% -Special taxes on slave transactions of 4%, and -Taxes on the release of slaves at the rate of 5% of their market price. Already in the Roman Empire taxes played not only a fiscal role, but also had the function of stimulating economic development. At that time taxes already had a monetary form, which forced the population to generate surplus production for sale. This promoted the expansion of commodity-monetary relations, an intensification of the division of labour and of the urbanisation process. Many economic traditions of the Ancient Rome were adopted in the Byzantine Empire. In the early Byzantine period of up to the end of the VII century, the empire had 21 types of direct taxes, including:
• Land taxes • Individual duties • Army maintenance taxes • Taxes on the purchase of horses • Recruit taxes, which released the person paying the tax from military obligations • Charges on the sale of merchandise (usually around 10-12.5%) • Charges for issued state documents The Russian financial system started to develop a little later. The unification of the Ancient Russian State began only at the end of the IX century. The main sources of income in the sovereign’s treasury were the tributes. In essence these constituted initially a sporadic, but later a more systematic direct tax. Indirect taxation existed in the form of sales and court charges. Transit dues called “mit” were collected for the transfer of goods through mountain gaps, shipment dues were charged for transporting goods over rivers, “hotel” dues were charged for the right to own warehouses and the “retail” tax was required for the right to organise market events. The taxation system changed its form and improved under the influence of class conflicts. Its regressive character, conditioned by the preponderance of indirect taxes started to change in the 20th century in direct conformity with the transition to progressive income taxation. The taxation system of the 20th century, as a result of the efforts made in the finance science and practice is distributing the taxation burden more uniformly than ever in the history of taxation. In general, the taxation system is a complex and effective mechanism for the regulation of economic conditions; it is a flexible instrument, which influences the profitability of various ownership forms, and the effectiveness of national economies in the conditions of the current science development and of economic globalisation. However, the taxation policy of the state (which is defined as the manoeuvring of the rates and types of taxes) is subject to the lag effect, in contrast to the bankingmonetary policy, which is caused by the fact that any change of the tax rate must take the form of a legal document. Part 2. The Economic Content of Taxation Taxes are a defined as mandatory payments of the contributors to the budget and to the extra-budgetary funds in the amount determined by law and within the stipulated deadlines. Taxes represent the monetary relations of the state with corporations and individuals regards to the redistribution of the national income and the mobilisation of financial resources to the budgetary and non-budgetary funds of the state. Taxes became a necessary element of the socio-economic relations at the moment of the state formation. The development and transformation of the organisational forms of the state were always associated with a modification of the taxation system, which depends on the development level of the state’s democratic forms. The economic essence of the state was addressed for the first time in the work of D. Ricardo, who wrote “Taxes form the share of the produce and work of the country, which is transferred to the government, and ultimately they are always paid from the capital or income of the country.”
Russian economists also made a certain contribution to the development of the taxation theory. Among them, N. I. Turguenev mentioned the following: “Taxes are the essence and the means for the achievement of the goal of society or the state, i.e. of the goal that people assume for society.” Sokolov wrote: “Taxes should be understood as the compulsory collection of funds charged by the state from corporations and individuals in order to provide for its costs, without offering the tax-payer a corresponding equivalent.” Which means that the state collects with the help of taxes means for the formation of a centralised state fund necessary for the fulfilment of the state functions. Taxation theory constitutes a part of the finance science. Taxation plays a role in the process of redistribution of the new value, is involved in the process of reproduction, and constitutes a specific form of production relations. The source of taxation is the newly created value, i.e. the national income. The source of tax payments is the value added of the product and a fraction of the value of the necessary product. Taxation, as a particular type of production relation, constitutes a specific economic category with stable internal features, development patterns and forms of manifestation. However, taxation is not just an economic but also a financial category. Taxation has general traits pertaining to all the financial relations, but at the same time, it has its own defining features and functions, which differentiate taxation from the entirety of financial relations. Part 3. 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 value-based 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 socio-economic 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. 4) The controlling function of taxation—through taxation, the state controls the financial-economic activity of juridical and natural persons. This also contributes to controlling the sources of income and the directions of spending. 5) The incentive function stipulates special taxation arrangements for a certain group of citizens, who are social achievers (participants in wars, etc.). This function of taxation has a social facet. Part 4. The Role of Taxes in Modern States “The state, or, to be more exact, the government cannot do anything for its citizens if the citizens are not doing anything for the state,” mentioned the originator of the Russian finance science, N. I. Turguenev in his book “The Experience of the Taxation Theory.” Taxes have a central role in the system of state revenues. In all countries, taxes constitute 80-90% of the state budget. In conditions of market relations, taxation is the main instrument for the regulation of economic development. This imposes great constraints on the taxation mechanism, on the taxation system, which must also provide for the formation of the budget revenues needed for the achievement of the stipulated objectives. Taxes are an objective necessity since they are conditioned by the development needs of society. The need for taxation results from the functions and objectives of the state. The state does not have other acceptable methods to insure its revenue in market conditions. The participants in the social production processes include economic agents, hired employees and the state. Their initial revenues are formed in the production sphere of goods and services and these constitute the value of the resulting GDP of the country. The GDP includes wages and salaries, social contributions, gross profits, consumption taxes, and other production taxes. Wages and salaries constitute the primary income of hired employees, gross profits make up the primary income of the economic agents and the remains form the revenue of the state. These are accumulated in the budget system and in extra-budgetary funds. As a result of further redistribution, through the taxation of primary revenues, the secondary revenue of economic agents is formed; this includes the net income
When the tax rate reaches a certain limit. That is. as a result the author suggested that surplus savings must be subtracted with the help of taxation. Interest and Money. The higher the tax rate. Such a large divergence among countries depends on the number and volume of state functions. Usually. Mills. Mutt. the state collects from 29% (in the USA) up to 55% (in Sweden) of the GDP.” According to Laffer. I. Arthur Laffer contributed considerably to the neoclassical taxation theory. Theories about the State Regulation of the Taxation System Attempts to provide a theoretical grounding to the practice of taxation are reflected in taxation theories. a part of the taxpayers will transfer from the legal to the shadow sector of the economy. where they start to decrease. Otherwise. However. For a long time. He established a quantitative relationship between progressive taxation and budget revenues.of enterprises. taxable income decreases. A. scientific fields. Caldor considered necessary the division of . this theoretical approach to the nature and role of taxation changed in the course of many decades and centuries. where a further increase in the taxation rate would lead to a drastic aggravation of economic and social contradictions. The conceptual models of taxation systems changed in accordance with the political economy of the state. while Sweden has a wide-ranging social policy. Keynes argued that high level progressive taxation is necessary and that low tax rates lead to reduced state revenues and as a result contribute to economic instability. the motivations for production expansion are reduced. and as a result. which had the most significant influence on the taxation policy of the countries with a developed market economy: the Keynesian and the neo-classical ones. it can achieve economic equilibrium. in extraordinary conditions the taxation ceiling can be raised significantly. Taxation can be applied up to a limit. Hence. influence the stability of the economy and in the context of the economic system act as “integrated flexibility mechanisms. The role of taxation consists of the following: • Due to the taxation instrument. Taxation problems also constitute an important element of the neoKeynesian theory. in the USA the state does not finance health care and education. a high tax burden would hinder economic activity and restraint the investment policies of corporations. Smith’s work was developed later on by D. insubordination to the fiscal authorities. Ricardo. Laffere. which would lead to a downfall in the production funds renewal and in an economic recession. the higher the motivation for tax evasion. capital outflows from the national economy across the border. the net wages earned by hired employees. large amounts of savings hinder economic development as they represent a passive form of income and are not invested in production. in addition. A restricted taxation policy would allow the market to provide independently for fast development and would lead to a significant expansion of the taxation basis. who exposed its main principles in his book “The General Theory of Employment. One of the main assumptions in Keynes’s theory is that economic growth is related to monetary savings only in conditions of full-employment. state intervention is achieved at the level of effective demand. In the contrary case. or the relocation of the population to other regions for tax reasons. fast economic development must be based on a market expansion and an associated increase in consumption. The initiator of the Keynesian taxation theory was John Keynes. Smith gave a definition of the taxation system. tax evasion. Petty. among them there were two directions of economic thought.” The neo-classical theory developed by J. High taxes stimulate economic activity. As a result. taxation policy should be developed under the same assumptions: taxes must be as small as possible and corporations should be granted significant tax exemptions. the evolution of which took place together with the development of various directions in economic thought. deductions from the costs of scientific research and experimental construction works promote the development of progressive. and others is based on the assumption that the state is obligated to remove obstacles to free market competition because the market can and must regulate itself without external intervention. According to Keynes. As a result. convenience and thrift of taxation administration. indicating the main conditions for its formation and putting forward four main taxation principles: equity. the budget of the state. All the theoretical deliberation and scientific debates of those years were focused on one singular aspect: that the execution of the taxation’s function—the provision of state revenues—is achieved on basis of the principles of equity and justice. Part 5. this theory differs from the Keynesian one and assigns a rather passive role to state regulation of economic processes. determination. the optimal level of taxation is established at the stage of budget planning by taking into consideration the financial needs of the state and the requirement to maintain an effective. functioning system of the economy. the classical taxation theory was of most importance. This ceiling is defined as a maximum taxation level. Smith is considered to be the father of the scientific taxation theory. an increase in the tax burden leads to an increase in state revenues only up to a level. This is why the state must intervene with the purpose of subtracting income savings with the help of taxation in order to finance investments and cover state expenditures. According to this theory.” in which he advocated state interventions in the processes of market economy regulation. As a result. new taxation theories emerged. A. and developed the so-called “Laffer curve. taxation was only granted the fiscal role of providing state revenues. Fast-track depreciation reduces the taxation basis on the one hand but leads to technological progress on the other hand. entrepreneurship incentives are suppressed. Laffer considered that 30% of income is the maximum taxation rate that can be deducted for state budget purposes. As a result. Fisher and N. Such effects can take the form of open political conflicts caused by fiscal reform. J. Naturally. In his monograph “An Inquiry into the Nature and Causes of the Wealth of Nations” A. according to Keynes taxes must play the most important role in the system of state regulation. For example. and W. The influence of various technological progress stimulation methods through the taxation system is variable and undefined. when economic relations became more complex and the need for the intensification of the state’s regulatory role became more stringent. the state has the opportunity to influence economic development in accordance with its programmes • Taxes must stimulate the development of entrepreneurship and small business • Each state should have a taxation climate favourable for foreign investments • Taxation affects changes in the structure and magnitude of the population’s purchasing power.
The Subject and Object of Taxation Taxation Allowances Tax Rates and Other Tax Elements. the latter is the entity carrying the tax as a result of economic processes and transfers. which is simultaneously a method for promoting savings and a tool for fighting inflation. the transit of goods though a customs territory. the income of individual juridical persons. fees of people engaged in freelance occupations. In the international practice. the system of allowances and reliefs has been formed a long time ago. Otherwise. interest revenue. is more just for people with low incomes than a fixed sales tax. The Subject and Object of Taxation The unifying basis of all taxes in the RM and other countries are the taxation elements. events. Individual income is taxed only after it reaches a certain level (which is the non-taxable income). works and services.e. which are transformed in capital investments with the help of the same budget policy—“the subtraction of the surplus savings. thus stimulating their growth. land and real estate rents. one should not adopt taxation theory blindly. wealth (real estate. according to the law. Earned income tax relates to salaries. the USA government managed in the 80s to overcome economic crisis situations. fulfilling taxation obligations in accordance to the ownership of the taxation object. Caldor considered that the consumption tax introduced through progressive rates with the use of exemptions and tax allowances for separate types of goods (for example. the consumption tax does not cover savings that are necessary for future investments. The former is the entity that initially pays the tax. conditions). The taxation object is the object or phenomenon. which. This takes place primarily at the deduction of secondary taxes. Additional sums for the maintenance of each dependant. consumption (excises and VAT). or the import and export of goods (customs duties). In this context. i. This led to the idea of a consumption tax. In addition. by taxing the final cost of the consumed product and by taxing savings only as a % of the deposit.taxation objects in accordance with consumption. One of the main elements. Taxation objects can be classified in the following way: income (income tax). Income taxation is divided into the taxation of earned and unearned income. If the state has the right to deduct a part of the income. Lecture 2. The taxation object materializes as a result of legal events (actions. Scientific taxation theories played a positive role in the economic development and growth of many countries. in comparison to the income tax.. Every citizen of a state is a taxation subject. which affect the obligation of the subject to pay the tax: the sale of goods. for objects of everyday use). 3. taxation subjects are responsible for paying the VAT. land). yet the real carriers of the tax are the consumers. the receipt of inheritance rights. The money assigned earlier for the purchase of consumer goods could now be used either for investments or for savings. this relates to the obligation of each citizen to offer a part of his/her wealth to the state. is being taxed. by relating certain aspects of the taxation theory with the applications of economic and financial policy implementation. capital expansion. Nevertheless. one should not forget about the distinction between the taxpayer and the tax carrier. Part 2. expenditures for the support of infants and elderly. For example in RM. the taxation system will unavoidably have negative effects on the development of the economy. ownership of wealth. is the notion of payer.” Long-term savings in themselves serve as a factor for future economic growth. the receipt of revenue in one or another form. the notion of the taxation subject. without relating it to the socio-economic situation of the specific state. typical for the taxation instrument as a whole. tax reform has to be performed in conformity with the economic development goals at the given stage. 2. Tax Allowances A tax allowance is a full or partial reduction of the taxation burden in correspondence with the legislation in force. Taxation Elements 1. for medical services that cost over a certain . Hence. wealth transfers (inheritance and gift tax). Taxation of unearned but legal income refers to dividends. With the help of the taxation policy based on some aspects of the neo-classical theory. The taxation subject is the individual or company. Part 1.
Tax credits are allowances aimed at the reduction of the tax amount and of the taxed sum. Missing the deadline automatically leads to penalties. in Holland—the weight of the car. Thus. Tax rates can also be classified as follows: * Val ue 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. For example. Permanent tax allowances are granted to people. there are marginal. when payments have to be made to the state or local budgets. refugees. Part 3. Tax allowances form an important element of the taxation policy and entail social and economic goals. who are fulfilling other obligations or who have earned special merits with the state. Depending on the influence on the results of taxation. 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. Tax Rates and Other Elements of Taxation The tax rate is the size of the tax set per unity levied. In this case the size of the sum accounted for should not exceed the taxation sum payable in the Republic of Moldova. which is also a reduction in the taxation obligation. in the sphere of international economic relations. and others. Most often this happens in the form of discounts or relief from customs duties. the taxation basis cannot be determined as the part of the taxation object. it is necessary to first select some physical feature. as well as to extra-budgetary funds. In these cases. Temporary allowances are granted to adolescents. the taxation object for car owners is the car itself. The source is different from the object and does not always correspond to the latter. There are fixed and percentage rates. when income is taxed. but sometimes this is done through the extension of the payment deadline. Irrespective of the taxation object. Appropriation can be relevant permanently or temporarily. Tax allowances are usually implemented through the taxation obligation of the payer. 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).e. not all of it will serve as the taxation basis. Different countries have various parameters of levying: in France it is the power of the engine. Thus. The comparison of economic rates most adequately represents the consequences of taxation. in Germany—the volume of the operating cylinders of the engine. which takes account of the specific traits of the payer and applies a reduced taxation burden. the majority of the taxation objects cannot be expressed directly in taxation units. The taxation basis is the part of the taxation object expressed in levied units. Tax payment deadlines are dates indicated in the law. income tax for a company of 28%). In terms of content. to determine the measuring unit of taxation. The tax amount can be reduced either partially or entirely. 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). There is also the reduced rate. For example. to which the tax rate is applied. . to which a tax rate is applied in correspondence with the law. tax allowances are widely used as an incentive for exporters and foreign investors. the rate that does not take into account the specific characteristics of the subject or the type of activity levied (ex. factual and economic rates.amount. The source of tax payment is a resource used for paying the tax. Preferential regimes are established by developed countries towards developing countries in the framework of the Global System of Preferences. 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. the source of the tax payment can only be the net income (profit) or the capital of the taxpayer. for a limited or unlimited period of time. These can be classified into permanent and temporary allowances. Percentage rates are classified can be proportional. i. which again takes into consideration the specific activity type that leads to income creation and applies an increased rate. the land tax). and the increased rate. For example. The process of appropriation removes certain objects from being covered by taxation. In contrast. but only a part of it—the taxable income. VAT 20%). Tax amnesty is the return of the paid tax sum.e. 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. or the exemption of the taxpayer from financial sanctions for a certain period of time. A marginal rate is indicated directly in the taxation legislation (ex. and people without a permanent residence in the given state but who are there only temporarily. foreigners. In order to measure the object. progressive or regressive. It is possible to develop a certain systematisation of tax allowances. i. the taxable profit can be expressed directly in monetary units. In a number of cases the taxation basis is factually a part of the object levied. The exemption from tax for a certain period of time is called a tax break. The factual rate is defined as the relation between the paid tax amount and the total amount of income received. irrespective of the identity of the taxpayer who missed the deadline. a part of it. It is important to emphasize the notion of base (main) rate. But this is relevant only in the cases where the taxation object is directly conducive to and allows for a calculation measure. the object of the land tax is land ownership and the taxed item is the specific piece of land. for all taxpayers and for certain categories. for charitable donations and for education expenses are subtracted from the taxed income.
which would lead to an actual stimulation of investments into entrepreneurship activities and would. On the other hand. The principle of determination. economic. . organizational or juridical structure of the entity.e. the financing of education. 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 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”). in this case the approach is connected to the structure of budget expenditures. which implies setting the deduction rate at a level that would allow the subject to have an income necessary for normal development. 3. They are: 1. increased and differentiated rates. which contradicts the basic principles of the market. type of activity. a significant increase in tax rates). 4. In the international practice. taking into consideration both the wealth and the income of the taxpayer. Part 1. there are two methods of implementing the justice and equality principle. The principle of convenience implies that the tax should be deducted in the manner and at the time most convenient to the payer. including the insurance of a minimum living standard of the citizens. Lecture 3. The principle of justice. 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. Classical Taxation Principles A number of principles that characterize taxation in general and the taxation system more specifically were set forth by A. The scientific approach for the determination of the exact tax rate. Allowances should not be established for certain payers only—they should be the same for everybody. 4. It is not acceptable to introduce additional taxes. 2. The second approach depends on the capacity of the taxpayer to pay taxes. 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. Smith. 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 magnitude of the tax burden should allow the normal functioning of the taxpayer after paying the tax amount. 5. Hence. Differentiation of tax rates in accordance to the level of income. which requires the exact determination of the sum payable. health protection. This principle means that taxes must be deducted in conformity with the capacity of the payer. or economic sector. citizenship of natural persons or other factors. 3. which implies the utilization of various types of taxes. the payment method and deadline (“the tax. or tax allowances for different types of ownership. 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. The application of a tax allowances system. Usually these two approaches complement each other when a taxation system is elaborated. in the rationalization of taxation. this leads to the creation of the best possible conditions for the implementation of this principle. The system and procedure of tax payment should be comprehensible and convenient to the taxpayer. nor should it be transformed into an individualization of rates. at the same time. Tax rates should be determined by law and should not be revised frequently. Each entity must pay its share in accordance with the capacity to pay. Classical Taxation Principles Modern Taxation Principles The Essence and Form of Taxation Taxation through Fixed and Proportional Rates Taxation through Progressive and Regressive Rates. The thrift principle implies the reduction of deductions from the tax amounts. In addition. which each individual is obligated to pay. 7. etc. which should not develop into an inhibitive progression (i. i.”) This implies that the main types of taxes and tax rates are fixed for a number of years. According to this approach. The rational combination of direct and indirect taxes.4. taxes should not be established or applied on basis of political. comply with the principle of social justice. 3. 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. Stability. These are: 1. 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.e. or other criteria of this type. Taxation Principles and Forms 1. 2. the taxation system must be flexible and should easily adapt to the dynamic socio-economic conditions. the taxpayer receives back a part of the tax paid through various transfers from the state budget covering compensations. The first method entails insuring the benefit of the taxpayer. 5.”) Part 2. 2. must be determined exactly. and ethnic factors. or the endurance of taxation for a long period of time and the simplicity of deducting the payment. 6.
excises or the land tax). The Essence and Form of Taxation Taxation is the entirety of economic (financial). Proportional rates are equal for all the levied objects. in accordance with a tax rates ladder. the lower the rate that needs to be established by the state for the collection of a certain tax. Progressive taxation is related to the notion of discretionary. but only to the sum that exceeded a certain level (income tax for natural persons). Part 5. progressive. or free income. income tax in the RM). 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. but taking into consideration the rate inflation. yet the increased rate does not apply to the entire income. organisational. Redistribution should not only maintain but also increase the profitability of economic sectors 4.Part 3. 3) The low rates applied through proportional taxation lead to a reduction in tax evasion. i. This method implies using the progressive method for one part of the object and the proportional method for the rest of the object (ex.e. Such a mechanism is used for VAT deduction. an increase in income leads to an increased taxation rate of the entire income. With the complex progression method. Progressive taxation is defined through an increase in the tax rate in conformity with simple and complex progression. Taxation can also be developed or developing. the rate does not change in accordance with the object levied. economies are divided as developed and developing. 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. In current conditions. However. 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. Taxation should comply with the following requirements: 1. 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. preponderantly in monetary form. This is the reason why such rates are related to the size of the minimum wage. Discretionary income is defined as the difference between the total amount of income obtained by the payer and the untaxed minimum income. . Complex progression is opportune for payers with high incomes. There are three types of taxation: proportional. The advantages of this method are: 1) The larger the taxation basis. we usually face percentage rates. this approach is not acceptable. A mixed taxation method is used in practice. Fixed Rate and Proportional Taxation Taxation rates can be represented in fixed sums or in percentages. and regressive. With the simple progression method. where the size of the rate is determined in accordance with the rate of income increase. progressive and regressive rates. Percentage rates are divided into proportional. Only factually created value should be included in the process of redistribution 2. a specific ladder taxation is applied. there are fixed sums rates (ex. Internationally. However. this is why it became very popular. and legal relations formed on the basis of the objective redistribution process of value. Progressive and Regressive Tax Rates Progressive rates increase with the increase in the taxation object. The final goal of redistribution must be the maximum satisfaction of social needs 3. Part 4. 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).
which pays the income of the taxation subject. If the taxpayer does not comply with the request of the taxation authority to pay the tax or charge amount. The financial relations between the state and the taxpayer are reflected in the tax obligation. The taxation basis and the method of its determination. which usually takes the form of a fine. Tax Debt Payment Methods Part 1. the tax collection method is established. bank transfers. Tax payment is the obligation of each taxpayer. Tax Rate Establishment and Tax Collection Procedures When introducing one or another type of tax. The methods of payment are cash. Tax Rate Establishment and Tax Collection Procedures Tax Collection Methods. It is acceptable to exchange tax and state obligations between the state and a certain taxpayer. 2. Taxation at the source is calculated and deducted at the accounting unit of the company. 3) additional payments determined by the tax authority required after the examination or verification of the submitted selfassessment. Next. Part 2. In this way is deducted the tax from wages and salaries. a penalty is applied. for the house tax—the number of windows. The same method is used in other countries for the income of joint ventures. verify the accuracy of tax calculations. Tax Collection Methods There are three tax collection methods: cadastral. sale of merchandise etc. The cadastre method implies the use of the cadastre. it should be remembered that one object cannot be taxed through multiple taxes or charges.. which excludes the possibility of tax evasion. 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 self-assessment. The cadastre is a register of all the typical objects (land. it is necessary to identify the taxpayer of the given tax and the source to be levied (the cost or the profit). Collection at the source is done for taxing income of employed personnel and for other relatively fixed incomes. this constitutes the main disadvantage of this method. 2) payment by the taxpayer at the due date on basis of selfassessment at the time or after the presentation of the income selfassessment: the tax payer independently subtracts the tax amount and transfers it to the state. may differ significantly from actual profitability. The tax rate depends on the sum that needs to be collected and the number payers. 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. If the payment deadline is missed. i. The payment is executed in cash or through a bank account in the national currency. pipes. for industry tax— the number of employees and machines. Tax collection at the source implies collection before the receipt of the income by its owner. the distance from transportation ways and markets. and to unconditionally subtract the tax . Full or partial tax evasion constitutes sufficient grounds for applying a punishment to the taxpayer. real estate) classified according to physical features and where the average profitability of the object is determined. The average profitability of the object. at the source (before the receipt of the income) and through self-assessment (at the declaration of the income). wealth.e. 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. an official statement about the income received. Taxation authorities. This method entails a number of variations: 1) in advance payments during the taxation period. 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. Surplus payments or subtractions can be directed for upcoming taxes payable. Self-assessment 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. This obligation covers the entire wealth of the taxpayer.amount from the bank account funds or from the sale of the arrested property. the type of the building. Then. Lecture 4. The fulfilment of the tax obligation is achieved through paying the established tax or charge amount within the stipulated deadline. This method is usually applied for the taxation of non-fixed revenues and for the cases when the taxpayer has multiple income sources. except when indicated in the law) together with the calculation method of the tax. Physical features include: for the land tax—the size of the land area. which is based on physical features. taking into consideration the size of the taxation object and the taxation rates. doors. or duty stamps. the exact taxation object is determined (income. The tax is subtracted by an intermediary—the collector (tax agent) before the receipt of the tax by the subject. The fulfilment of the tax obligation is mandatory and is executed irrespective of other obligations that the taxpayer may be subject to. Tax Rate Establishment and Tax Collection 1. 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. In RM this method is used for land tax.
For the collection of individual taxes. On economic basis: direct taxes are subtracted from the production of valuables. 3. customs duties. this is why the house tax was introduced. In this context. they are directed for general state programmes. In practice. Principles of Tax Classification Characteristics of Direct Taxes Characteristics of Indirect Taxes Part 1. special extra-budgetary funds are created for the special purpose taxes and a special article for this type of tax is introduced in the budget law itself. In correspondence with the payment indices: direct taxes are paid and carried by the same entity.e. income tax for natural persons) Taxes on wealth (individual tax. Direct taxes constitute the basis of the taxation system. In accordance with the taxation subject—individual and corporate taxes VI. excises and the customs duty). General taxes encompass the majority of the taxes in any taxation system. 2. In accordance with the collection method: Direct taxes which are determined directly for the income or wealth (income tax. Real taxes are applied to the sale. having appeared later than the direct taxes. Direct Tax Characteristics Chronologically. while the final payer of the indirect tax is the consumer of the good. the tax for returns on capital). and industrial tax. In the second half of the 19th century. for indirect taxation. tax classification is done according to various criteria: II. from income or wealth. buildings became an important taxation form. the mechanisms for direct taxation appeared earlier tat those for indirect taxation. the buyers of various goods usually do not know exactly when and how much they are paying to the state through indirect taxes. land tax. Historically. inheritance and gift tax) Consumption tax (VAT. Direct taxes are divided into real and individual ones. 1. however. III. Principles of Tax Classification The existing taxation system includes various types of taxes. VII. land. 1. purchase or ownership of wealth. individual income tax. real estate tax. the most important development was the transition to taxing land profitability determined according to the cadastre (the land register that accounted for land fertility). family situation and other factors. 1. an accurate determination of the purchase price of land. i. As a rule. . 3. Individual taxes are income or wealth taxes collected at the source or on basis of a self-assessment. number of doors. In the 1. road tax. and others) Indirect taxes which are applied to goods and services in the form of an addition to the price or tariff (VAT. However. aimed at the formation of the state budget Limiting (excises and customs duties) V. In accordance with the objectives set: Fiscal. and their deduction does not depend on the individual financial capacity of the taxpayer (land tax. individual taxes take into consideration the financial status of the taxpayer and his/her capacity to pay (profit tax. while indirect taxes are applied to the consumption of valuables. Direct taxes are the most progressive form of taxation because their deduction takes into consideration the income and family situation of the taxpayer. Special (purpose) taxes have a strictly defined purpose and are aimed for a certain type of expenditures (land tax. as well as the strictly applied deadlines. indirect taxation mechanisms are transformed into a more palpable channel for the provision of state budget revenues. 2. The criterion for dividing taxes into direct and indirect ones is the possibility to transfer them to the consumer. the payer can determine the exact tax amount. excises. Real taxes were widely used in the period when land was the main form of wealth. These criteria did not allow. 2. There are two methods for distinguishing direct and indirect taxes: 1. Yet. 2.Lecture 5. Local taxes collected by the local authorities of the corresponding territory and transferred to the local budget: real estate tax. This is when the land tax was introduced in Europe. wealth tax. the tax rate.e. The size of this tax was determined on the basis of the following criteria: number and purpose of rooms. 1. and windows. which deducts the tax and disposes of it: State taxes. housing. for covering the expenses of the state. i. this is why the level of income and the family situation started to be taken into consideration. In accordance with the entity. objects are considered individually for each payer. In accordance to the purpose of utilization: General taxes are amalgamated and transferred to a single state account. the area of the processed lands. to the price of which the tax is added. excises. Direct taxes are divided into real and individual ones. Part 2. which defer from one another in form and content. 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. When paying direct taxes. customs duties) IV. natural resources charges). determined by state legislation. Various methods were used for the calculation of this tax. a transition to individual taxes started to happen. these criteria could not insure the fairness of taxation. In contrast. Real taxes comprise the land. 2. individual tax. In accordance with the taxation object Income tax (profit tax. individual tax and charges for the Road Fund. Types of Taxes 1. transferred into the state budget and applied in the same way for the entire territory: income tax. 2. This involves taking into consideration the size of the income. VAT. real estate tax). including the number of ploughs. while indirect taxes are carried by one person and paid by another one. 2. With time. real estate tax. natural resources charges and local charges. and others.
Customs duties are applied in most countries only to imported goods. which is used in the world taxation system since the end of the 60-ies. This is most advantageous for the countries that face economic progress. 4) For the consumer. . road charges and the state tax. the resources used in production. A good example of a universal excise is the VAT. but also of indirect taxes. 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. Indirect taxes are divided into excises. At the same time. and the fiscal effect is achieved even in conditions of production downfalls and unprofitable periods of enterprises. 3) Taxes are received as a payment for the good. In developed countries the relative weight of indirect taxes is usually lower than that of direct ones. or instead of taxing a large number of items it concentrated on a selected few. Indirect taxes make up 55% of the total budget revenue. spirit). salt. excises. Usually. Indirect taxes are applied to goods and services and take the form of an addition to its price or tariff. according to many experts. independently of their income pay indirect taxes because they consume goods and services necessary for survival and which are chargeable to indirect taxation. The largest part of indirect taxes is transferred into the state budget. The payers of indirect taxes are the buyers or the consumers. 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. is a general tendency covering essential as well as luxury goods. while in developing countries —the opposite occurs. land tax. In most countries import taxes constitute the largest part of customs duties. 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. 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. All the citizens. matches. while most of the direct taxes are transferred into the local budgets. 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. exporting goods is not taxed through a customs duty. Part 3. the work force. and customs duties.RM. indirect taxes include the VAT. as they are added to the price. Customs duties are classified into export. In the RM. 2) By influencing the consumption rate through increasing the price of one product or another. state fiscal monopoly. Individual excises are applied to certain types and groups of goods. Indirect taxes are the simplest to collect and are also difficult to evade by the taxpayer. and customs duties. Excises can be either individual or universal. the state limits the consumption of products that are dangerous for health. the wealth of enterprises. and the income. import and transit duties. real estate tax. Fiscal monopoly taxes are applied for the state production of goods (ex. Indirect Taxes Characteristics The formation of the budget revenues entails the collection not only of direct. direct taxes include the income tax. The evolution of indirect taxes.
In the last few decades a continuous decrease in the share of the profit tax in the budget revenues can be noticed. government resolutions. The Concept of a Taxation system The Taxation Legislation The Taxation System of the Republic of Moldova The Taxation Apparatus Part 1. the rules of the international agreements apply. Normative acts approved by the government. the share of customs duties decreased significantly due to the GATT and WTO. obligations and responsibilities of the taxpayers and taxation authorities. a large number of citizens did not pay this tax because the untaxed minimum was set at a very high level. VAT and excises are the most important. Among indirect taxes. The Notion of a Taxation System. excises and customs duties. Taxation Legislation Taxation legislation is the aggregation of all the legal financial documents including legislation acts. GNS on the basis of. i. magnitude and quantity of allowances offered. For the income tax there is an untaxed minimum. the elaboration and calculation of which relies on certain principles. VAT. a taxation reform was introduced. Since the taxation system of the RM was built following the framework of developed countries. In order to promote the legal functioning of the taxation system. The Concept of the Taxation System The taxation system represents the totality of various types of taxes. and on 01.1998 the two first sections of the TC came into force. Ministry of Finance letters. scientific research expenditures and capital investments. charity expenditures deductions. presidential decrees.1998 the third section. which result in the highest collections for the budget. The Taxation System of the RM 1. and social conditions. according to the rate. while on 1. Part 3. which represents an income tax. The existing taxation system of developed countries includes a large number of taxes and its structure depends on the organization of the state. applied to the entire income of the taxpayer. In unitary states the taxation system includes two elements: state and local taxes. for reasons of avoiding double taxation through international agreements to which the Republic of Moldova is a party. all the countries follow some general principles. income tax became universal. to their rates. very high tax rates were established (in USA the maximum rate reached 91%). as well as logistical matters of tax collections and payment control. The global system. Currently in western countries. in the beginning of the 80s. according to the structure of taxes. This is why it is natural that taxation systems of different countries vary in the types of taxes used. After the World War II. dealing with the VAT entered into force. methods of collection. They include the income tax. In 2000. and in compliance with the Taxation Code cannot contradict its provisions and surpass its frameworks. 4. The main taxes. 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. The taxation legislation of the Republic of Moldova consists of the National Constitution and other legislative acts approved in correspondence with the constitution. determined through the method of complex progression. it is necessary to make a review of these countries’ taxation systems of. a part of the taxpayers’ income is not taxed.Lecture 6. In federal governments the taxation system includes three elements: state (federal) taxes. There are two systems of applying the income tax: 1. as well as other indices. Yet. In most countries the income tax was introduced in the 20th century. This system has been applied for a long period of time (1842-1973) in Great Britain and a number of other countries. This tax constitutes 30 to 50% of all the indirect taxes. however. In case of divergence between the provisions of the Taxation Code and those of other taxation legislative acts regarding the granting of real allowances. These are “General Provisions” and the “Income taxation” sections. rights. which allow the creation of optimal taxation systems. This taxation system involves taxation at the source of income not on the entire amount but on parts of the income. other provisions are stipulated. are related to the state budget. These laws entail the principles of the taxation system. VAT is not implemented in the USA. its structure. taxes related to the federation subjects (regional taxes). The main tax allowances applied to corporation profits are the fast track depreciation. In the beginning. right after the war. political. corporation profit tax. If. Then. 2. The schedule system (or the English system).07. the provisions of the Taxation Code are apply. And also. in 1992 the Law on the Basis of the Taxation System was adopted.” Entry into force of these sections was assigned for the years 2001 and 2005 respectively. 2. VAT is used in all countries of the EU. 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). another two sections were approved: section 4—“Excises” and section 6 “Real Estate Taxation. 3. In the years of the World War II. The taxation systems of most countries developed throughout centuries under the influence of various economic. Israel and a few other countries. which led to a significant decrease of the tax rates. The taxation legislation changes and adapts to market relations and new economic conditions. Part 2. a global taxation system is applied. The Taxation System of the Republic of Moldova . This is related to the constant rise in tax allowances and to the decrease of profit tax rates. as well as in Norway.e.01. and local taxes. fiscal authorities from various levels. This tax is collected by using progressive rates. Ministry of Finance.
declarations. Part 4. duties and charges deducted in accordance with the TC and with other normative acts constitute a part of the national public budget. for the disposal of solid household and industrial waste. the accuracy of calculations. Insuring the completeness and punctuality of accounting by the payers of all types of taxes and other payments 2. Real estate Tax 2. Charges for the utilization of the local logo 8. unrefundable payments that are not taxes or duties. the completeness and punctuality of tax and other payments to the budget. Car parking charges 11. were unidentified or have been inherited by the state 5. the accuracy of calculations. The system of national taxes includes: • Income tax • VAT • Excises • Individual tax • Customs duties • Charges for the Road Fund The local taxation system comprises: 1. for the utilization of containers. the completeness and punctuality of tax and other payments to the budget. Hotel charges 6. Explaining the legislation on taxation and other types of payments to the budget and extra-budgetary funds. Charges for the right to make television and film shoots 14. Resort charges 12. Taxes (duties) are mandatory. Dog ownership charges 13. and charges. Taxes.The taxation system of the RM is the aggregation of taxes. Spatial planning charges 4. • Organises awareness-building events and explains the legislation on taxation and other payments to the state budget and extra-budgetary funds. 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. declarations and complaints of payers of all types of taxes and other payments. 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. Charges for the sanitary maintenance of the territory. Charges for the right to organise local auctions and lotteries 5. Territorial taxation inspectorates fulfil the following functions: 1. Market charges 10. Executing the decisions of the local authorities regarding the calculations of the local charges and granting of tax allowances 3. examines letters. In accordance with the law “On the state taxation service” from 1992. evaluation and sale of goods that have been confiscated. Charges for the establishment of retail units 9. examines letters. unrefundable payments unrelated to certain actions of the authorised body or person in favour or in connection to the taxpayer. Charges for the right to transport passengers 17. Verifying the accuracy of calculations. Natural resources charges 3. The Taxation Apparatus A special taxation apparatus deals with taxation and tax collection issues. . modifications and annulments as well as measures for insuring actual payment set forth in the Taxation Code. Charges for retail activity rights on the border zone 16. duties. Advertisement placement charges 7. principles. Organizing the registration. the completeness and punctuality of tax and other payments to the budget. In the RM there are national and local taxes. 4. • Verifies the work of subordinates of taxation inspectorates. Charges are the mandatory. Charges for the right to cross the border 15. forms and methods of their determination. and complaints and takes measures for increasing work effectiveness.
1%. Tax burden can be defined as the relation of general sum of the tax proceeds to the national output aggregate that shows which part of the products produced by the society is distributed by means of the budget. But “Laffer’s curve” doesn’t provide the clear view of the admissible dimension of the bite of taxes into the country’s budget. its level depends on the taxpayers’ conditions in the specific country and on the economy’s conditions in this country in general. annulation of tax preferences and tax privileges) the effectiveness of the taxation system rises at the beginning and it reaches its upper limit. different fund capacity. on one hand. but to encourage the taxpayer in finding the ways to increase the management effectiveness.8%. Tax burden of one country equals the sum of the collected taxes/GDPx100% In the United States of America the tax burden constitutes 31. when there is a withdrawal of 40-50% from the taxpayer’s income. Notion „tax burden” 2. average of tax burden in European Union countries constitutes 40. deducting the taxes from the salaries of its employees. but the situation is different referring to the level of one enterprise. Methods for determination of tax burden 1. in Sweden it is 55.8%. and on the other hand. The optimum built taxation system has. Methods for determination of tax burden Tax burden can be determined either on the country’s level. or the other part of the taxpayers find ways either legal or illegal to minimize the taxpaying.8%.5%. in Russian Federation it is 32.6%. and taxation legislation. Tax burden of the enterprise can be determined by the separate indicators of enterprise’s activity. Tax burden 1. This dimension can not be constant and sufficiently precise. The perspectives of economy development in many respects are determined by the maximum level of the tax proceeds and by the level of the tax burden. that inevitably will have an influence on the formation of the taxation basis and the amount of the taxes paid. this indicator is necessary. in the Republic of Moldova it is 27. not taking into consideration individual particularities of concrete taxpayer. included into production costs/production costs x 100% Lecture 7. When referring to tax burden indicator on macroeconomic level. showing the level of taxation pressure on average statistical taxpayer. In this case the enterprise on behalf of government is not the taxpayer but rather the tax collector. The level of aggregate tax burden is determined by the necessity of financing the state expenditures for the realization of its functions. the level of profitability. The main problem is whether the amount of taxes should include that part of payments maid by employees to the pension fund and income tax. The world experience shows that withdrawal of 30-40% from the taxpayers’ income is that limit after which the reduction of savings starts which leads to reduction of investments into economy. Ungrounded increase of tax burden is the origin source of the shadow economy. There are many enterprises functioning in one country. but latter it starts sharply to come down. not influence negatively the stimuli of taxpayer in entrepreneurial activities. which differ from each other not only by the domain of the activity but also by other features. which is possible in the conditions of country’s economic policy currently in force.2. there is no practically problem in determination of the amount of taxes. At the same time. science intensiveness. . entrepreneurial stimuli and initiative for extension are completely liquidated. Notion “tax burden” Notion tax burden is used to express the taxation load in one country. because the government has to take into consideration this average indicator. That is why the tax burden is considered a very important indicator in evaluation of country’s taxation system. to provide with financial resources the state’s necessities. When the tax burden on the taxpayer increases (growing number of taxes and tax rates. In this case the losses of the budgetary system become irreplaceable. or on the level of separate economic agent (industry). because some of the taxpayers are losing everything or getting out of business. 1) 2) 3) Coefficient of tax burden on net sales = sum of indirect taxes/net sales x 100% Coefficient of tax burden on income of enterprise = sum of income taxes/sum of income x 100% Coefficient of tax burden on production costs = sum of taxes. The indicator “bite of taxes” is defined by the taxation system. It is the structure of production costs and conversion. in Japan it is 28.
Constant analyses of the present legislation with the purpose of detection of the existing tax loopholes and their annihilation. thus state programs financed by the government decrease. B) Insufficient development of international relations in direction of fighting the fiscal breach of law. control and law-enforcement bodies. There are different methods that are used to fight the tax evasion. B) Excessive tax burden on the taxpayer. В) for many people to steal from the government doesn’t mean to steal at all. non. the government receives fewer funds into budget. The tax evasion is significant social danger. illegal usage of tax privileges and untimely tax paying. the government can compensate this by introducing the new taxes. non-payers got a better position in comparison to law-abiding tax payers from the point of view of the market competitiveness. 1) 2) 3) 4) 5) 6) . oncoming controls). because the scale of tax evasion is growing practically in all parts of the world. B) Risk absence for the committed crimes. IV. There are different reasons for tax evasion. or by increasing the rates of existent taxes. that is caused by the fact that the taxpayers don’t fulfill their tax obligations. Operative actions (changing of accounting invoices with fiscal invoices VAT. V. especially during the economic crises. Essence of tax evasion its reasons 2. Methods of struggle against tax evasion 1. Morally-psychological: А) negative attitude toward the existent taxation system and officials. Appling the international relations in the sphere of detection of taxation laws violations. There are two methods of minimization the tax burden. I. and also the illegal operations. C) Often modification made and amendments into taxation legislation. 1) Tax planning (avoidance of taxes) assumes use of legal methods of taxation avoidance. by using different methods to fight the non tax payers. up to penal responsibility and deprivation of liberty for tax evasion or underdeclaration of.) 2) Tax evasion assumes the violation of the fiscal law and evasion from tax obligations by not paying the taxes.effective fiscal policy. Legislation development and its detailed decoding in the normative acts pursuing the avoidance of unrestricted interpretation of taxation legislation. First of all. B) Unclear formulation gives possibility for their dual interpretation. Essence of evasion from payment of taxes its reasons In a counterbalance to tax burden amplification. and such actions can provoke the other economic subjects. C) Lack of legal opportunities for providing the competitiveness in some spheres of business. among these are as follows: Establishment of sanctions’ system for breach of taxation legislation. Organization: А) Lack of the interaction between fiscal. changing the tax accounts.when there is a widely developed fiscal crime which in result bring to budget deficit. Secondly.Lecture 8. Tax evasion 1. Economical А) Deterioration of the entrepreneurial situation and of the population in general. using of tax privileges. General reduction of tax burden. Thirdly. II. presentation of false data. entrepreneurs search for different ways to minimize the tax payment. which is directed on the fiscal and not regulatory function of taxes. Legal: A) Inconsistence of many taxation laws with the laws enacted earlier. Methods of struggle against tax evasion All the countries in the world are trying to prevent the breach of taxation law. III. Political. Thus evasion from taxes is possible by using the legal methods. 2. The level of tax discipline depends on the general situation in the country. That is why it is in the interests of the society and of every tax payer to obey the taxation law and to prevent its breach. The notion of tax loopholes are used more often to express the positions in the tax laws that allow the tax payer to reduce the tax burden or to avoid it completely (income displacement. changing of stamps. It can be observed the sharp reduction of tax collection when the crisis of political power occurs. etc. organizing the activity so that the tax obligations would be minimal.
Romania. etc. if such profit is levied in the Republic of Moldova. directed to prevent the tax evasion and taxation discrimination in any form. Multilateral measures implies singing of international conventions in order to avoid double taxation. Double taxation is possible when one country is using residence principal in levying taxes. tax abatement. Ukraine. Bulgaria. International conventions signed in order to avoid double taxation and prevention of tax evasion have as a goal to create such conditions that would exclude situation when juridical and physical subject would be double taxed. It is coordinated by the negotiating governments. Essence of double taxation 2. Methods of elimination the double taxation The measures that are used for prevention of double taxation can be unilateral measures that are related to the norms of internal taxation legislation and multilateral measures that are implemented using the international conventions and agreements. in which is stipulated the order of levying of profits and assets. implies that the taxes paid abroad are deducted from the amount of profit to be taxed. when the goods are levied excise tax. Double taxation 1. or when each of the countries affirms that the profit was made on its territory. Japan. Canada. Double taxation restrains the economical activity of the entrepreneur. Double economical taxation is related to the taxation of two and more taxes from one tax basis.2) Lecture 9. and after this VAT is imposed on the price of the goods. Referring to the unilateral measures in the Republic of Moldova can be mentioned the declaration by the Tax Code of the taxpayer’s right to set-off (credit) the investment tax and finance profit tax. and brings to coincidence of tax object. 2. which results in identical tax payment. and distribution of taxation rights among the negotiating countries. Hungary. China. Belarusi. The double taxation can also occur in the situation when both countries affirm that the taxpayer is their resident. Russia. International double taxation is levying on one taxpayer in one or more countries for one object in the same period of time. and the other country is using territorial principal. Also the double taxation can occur when indirect taxes are levied. As an example can be presented the situation when the profit of the corporation first is taxed and after being distributed among the stockholders and it is taxed again as dividend tax. Germany. it influences the growth of prices for goods and services. Methods of elimination the double taxation 1. Essence of double taxation There are two types of double taxation: economical and juridical (international). paid in any other country. Turkey. including excise. of tax subject and the period of tax payment. Countries can levy income taxes using the principal of residence. Unilateral measures include the taxation tools that are foreseen by the national legislation: 1) Taxation set-off (credit) implies that the taxes paid abroad are set-off in internal tax obligations. or territorial principal. for instance. The Republic of Moldova has signed and ratified more then 20 conventions in order to avoid double taxation on profits and assets with the following соuntries: Poland. . it increases tax burden on juridical and physical subjects. and also it violates the principal of tax fairness.
fees. In conformity with the TC. including the allowances received from all sources by all juridical and natural persons minus the deductions and exemptions granted to the given entity by law. Income of associations and investment funds 3. Capital increases resulting from asset operations. Dividends received from economic subjects non-residents. the individual income tax. Bad debts. 2. Amortization of each non-material property item (invention patents. taxation subjects are the entities legally responsible for paying taxes. According to the taxation legislation juridical persons are: 1. Regular and necessary expenses payed or bourne by the payer during the taxation year exclusively in the purposes of the enterpreneurial activity.98 and replaced three taxes: the profit tax of enterprises. Part 2. and the profit tax of banks and other crediting institutions. 2. . In most countries of the world individual and corporate income tax vary.• • • 7% of the annual taxable income not exceeding 16200 lei (1350 lei/month) 10% of the taxable income exceeding 16200 lei but below 21000 lei (13501750 lei per month) 20% of the annual taxable income exceeding 21000 lei (1750 lei per month). Accrued wear and tear for each type of property during the taxation year.01. A General Overview of the Income Tax 1. Payment for the work executed and services provided. 8. The income tax subjects comprise juridical and natural persons receiving income from any sources on the territory of the RM during the taxation year. 4. Allowances for temporary inability to work. 2. A General Overview of the Income Tax Coverage Scope of the Income Tax Deductions Allowed for Taxation Purposes Part 1. bonuses and other such type of premiums. Income from renting out wealth. 11. For 2007 the income taxes are imposed as follwos: A) B) For juridical persons they constitute 15% of taxable income For natural persons including farms and individual enterprises The net income covered by the income tax includes all types of income: 1. 6. for the purposes of determining the taxation basis. this is why the unification of these taxes is an innovation in the taxation practice. and organizations involved in enterpreneurial activity with the exception of individual enterprises and farms. 5. including salaries and wages. commission fees. professional or any type of such activity. and juridical persons-residents. Percentual disbursements if these are necessary outflows for the enterpreneurial activity and if the majority of the shareholders are not foreign citizens or exempt from taxation. State subsidies. benefits offered by the employer. not defined specifically as non-taxable in the law establishing these payments. pensions and benefits with the exception of social security payments and benefits (pensions and compensations) received on basis of intergovernmental agreements). Income from enterpreneurial. Coverage Scope of the Income Tax Lecture 10. 2. A General Overview of the Income Tax In the RM the unitary income tax was introduced on 1. The taxed income=net income (accounting for concesions)-deductions-exemptions. Spendings related to the extraction of non-renewable natural resources. industrial drawings and blueprints with a limited life-time). membership fees. 7. Any enterprises. According to the taxation legislation. Royalties (income from providing the right to utilize non-material property). 10. 6. which have lost value and are not expected to be payed duting the taxation year. Non-residents with an economic presence on the RM territory According to the taxation legislation natural persons are the individual enterprises and farms. Annuities (regular insurance payments. Expenses related to the business trips of employees. but only within the limits established by the Government. Since there are various interpretations of the terms individual and company in the taxation and civil legislation. 4. The income tax object is the net income. Deductions Allowed for Taxation Purposes Deductions are defined as the sums deducted from the net income of the payer at the calculation of the taxable income. 5. Income received in the form of percentage interest rates. Part 3. 7. company insurance payments. 3. it is permitted to deduct from the net income the following items: 1. 3. which receive investment and financial income from sources outside the RM. received by natural persons from the state social security fund and others. 9. author rights. premiums and prizes. we will explain some of them. institutions.
Part 1.It is not allowed to deduct the following outflows: • • • • Sums payed for the purchase of land or property. whose disability occurred during military operations for the protection of the territorial integrity and independence of the RM as well as to the military operations in the Republic of Afganistan. Payments offered by the employer for the purpose of reimbursing personal expenses of the employees (this can include spendings for education. with the exception of contributions to qualified non-governmental pension funds. 7. Alimonies and child maintenance allowances. percentage interest rates and losses. including cases of disability incidents. The taxable income also includes allowances offered by the employer. 5. Personal and family expenses. or the maintenance of children in pre-school institutions). Persons who have contracted and experienced radiation-related illness caused by the accident at the Cernobil AES. adopters). and Wages 3. whose disability occurred during wars. In case the dependent has a number of custodians. Particular Aspects of Individual Income Taxation Preferential Taxation Treatment for the Individial Income Tax Calculation Methods of the Income Tax Subtracted from Salaries Income Tax Deductions from Payments Other than Salaries and Submission of Individual Income Tax Self-assessments • • • • Be a primary relation to the employee or the spouse of the employee either through ascending or descending relation (parents. disabled of category I or II or retired individuals who are rehabilitated victims of political repressions. . 6. 3. salary bonuses. Special compensations for the less privileged and socially vulnerable social groups. Contributions to pension funds. 2. 2. Disabeled persons. Expenses of the employer for providing the employee with the right to use property for personal purposes. 5. fees. 4. 5. Financial aid provided by the employer for housing expenses of the employee. the calculation of the income tax retained at the source and transferred to the budget is done according to the personal record book. Compensations and rewards. have the right to an additional discount in the sum of 5400 per year (450 lei per month). premiums. The taxpayer (the individual resident) has the right to an additional discount in the amount of 1440 lei per year (120 per month) for each dependent with the exception of disabled individuals. the discount is offered to all the custodians. Lecture 11. Undocumented expenses above the limit established by the government. Taxes are retained from any type of income: salaries and wages. including remunerations and allowances offered to the employee is obligated to retain and transfer income taxes to the budget. whose disability has been proven to be related to the accident at the Cernobil AES. Disabled persons. this allowance has the name of married couple’s allowance. Parents and spouses of deceased and missing participants to the military operations for the protection of the territorial integrity and independence of the RM as well as to the military operations in the Republic of Afganistan. health care. 3. According to the RM legislation. subsidies. such as: 1. Allowances received from charity organisations and others. Student allowances for high school. Wealth received as a gift or through inheritance. scholarships from charity organizations as well as one-time grants payed to young professionals offered jobs in rural areas according to the staff distribution. The amount of the individual preferential exemption constitutes 10000 lei per year—833 lei per month for the following: 1. disable from childhood. commission fees and other payments. The cancellation of the employee’s debts to the employer. resident) in the year 2007 has the right to a personal tax exemption of 5400 lei per year—450 lei per month. but the latter applies only in cases where the dependent is enrolled full-time in an institution of higher education for more than five months of the taxation year. 4. Part 2. which is applied if the spouse is not exempt from tax. Wages 4. Disabled natural persons. The net income of the employee does not include the following types of income: 1. Insurance compensations obtained as a result of insurance contracts. 2. For tax discount purposes. 8. 4. children. which is subject to depreciation or of fixed assets with a lifetime longer than 1 year. incurred in the interests of an official or related person. a dependent must meet the following criteria: According to the legislation of the RM. Leave allowances. Live together with the taxpayer or separately. Married individuals residents of the country. undergraduate and postgraduate students. when the housing is provided by the employer. Preferential Taxation Treatment for the Individial Income Tax Each taxpayer (individual person. whose disability appeared in childhood. 2. the employer executing the payments of salaries and wages. the discount for whom constitutes 5400 per year. Compensations received as a remuneration for health injuries. 3. rewards. taking into account the exemptions that apply to each employee. Is being maintained by the taxpayer Does not have an income higher than 5400 lei per year. Calculation Methods of the Income Tax Subtracted from Salaries and Wages 1.
2. deaf. science and cultural institutions. Natural persons—residents with the obligation to pay taxes. which pays for services. and it is allowed to apply to them the discounts stipulated in the TC. 4. Each payer of percentage interest rates and royalties must retain as income tax an amount equal to 15% of the percentage interest rates and royalties. Health care. religious. . public authority or public institution of the RM. organization. security of individuals. Taxation of Separate Taxpayer Categories Since there are differences between the taxation arrangements for various types of economic agents. Those who received income either in the form of salary or in any other form and from any source. 3. Parties and other socio-political organisations. Non-commercial organisations are expempt from taxes if they fulfill the following requirements: 1) They are registered according to the legislation 2) The use all of their income for achieving their objectives 3) They do not use any part of the property or income for the benefit of any one member of the organisation or any one individual 4) They do not support any political party. Trade and labour unions. in the cases where the economic subject pays dividents to its shareholders residents of the RM from profits before taxes. however. 3. Non-commercial organisations. However. marketing and consulting. 2. Associations of the blind. 2. property and services related to the installation. employers. audit. Each person (resident) involved in enterpreneurial activity.Part 3. we will look into the peculiarities of the following taxpayer categories: Public Authorities are exempt from income tax if they are financed by the state and local budget. election block or candidate for a public authority position. advertising services. with the exception of juridical persons who received the income in the form of salary in one single workplace. or institution. The legal status of diplomatic representatives of foreign states is regulated by the law of the RM on the status of Diplomatic Representative Offices of Foreign The following categories must present an individual income tax self-assessment each year before March 31st: 1. social associations. desabled and the enterprises established for achieving the goals of these associations. and are not using any part of the income or property for the financing of the above (this does not apply to item 4). Natural persons—residents receiving income from sources other than salaries and wages exceeding the personal exemption of 5400 lei per year. Specific Characteristics of Income Taxes for Selected Categories of Juridical persons 1. The income earned by these bodies from secondary economic activities are covered by the income tax. exploitation and repairs of computers. management. Individual Income Tax Self-assessments Lecture 12. Taxation of Separate Taxpayer Categories Taxation of Associations and Investment Funds Taxation of Qualified Non-governmental Pension Funds Taxation of Economic Agents Non-Residents Part 1. Those who received a salary or wage above 21000 lei per year. associations of veterans. he/she must retain from the dividend amount an income tax of 15% Tax retention on percentage interest rates and royalties. exceeding 21000 per year. Part 4. retains as part of the tax 5% from the amount corresponding to the sum payable. Income Tax Deductions from Payments Other than Salaries and Wages 1) 2) 3) Dividend taxation. Residents of the RM pay dividents from the net profits remaining after income taxation and they do not retain any income taxes on the dividends at the source of payment. 4. and charitable organisations. Services include: rent. 3. Tax retention from other payments. education. enterpreneurs and individual farmers. These include the following: 1. 4.
but any payments from the fund are included in the net income of the receiver. the funds remaining in his/her account are paid to the inheritors. the requirements that have to be met by qualified pension funds entail such strict limitations. Each member of the association pays income tax separately. The fund provides for a reasonable protection of the funds form being lent.e. given that the buyer is a resident. Any investment fund has several types of income.States in the RM. 2. Part 2. However. 3. Capital increases of the IF gained as a result of operations on the stock market. that the creation of even a few such funds is problematic. All revenues received by nonresidents on the territory of the RM are taxed at the rate of 5%. . In case of the employee’s death. Taxation of Qualified Non-governmental Pension Funds The creation of non-governmental pension funds allows for imporvements in the social insurance status of employees. Usually. Dividends. The dividends received from the economic subject whose shares belong fully or partially to the IF. Income from the sale of real estate located in the RM. but only with the condition that this sum does not exceed 15% of the income earned by this individual during the taxation year. but this only applies to the particular income. dies or becomes desabled. The sum paid on behalf on an individual by his/her employer during the taxation year to a qualified non-governmental pension fund with the purpose of accumulation is subtracted from the net income of the individual. 4. i. Income from the sale of movables (with the exception of stock of goods). as if they had been received by the shareholder without the participation of the fund. associations do not have more than 20 members-residents and meet the requirements of the proportional distribution of gains and losses between the owners of capital. whith the exception of royalties. The fund should be registered in accordance with the RM legislation. Part 4. Income sources in the RM include the following: 1) 2) 3) 4) 5) Percentage interest rates on loan obligations of the RM public authorities. According to agreements with the governments of other countries and with the leaders of international organisations. The payments made by the IF to its shareholders in accordance with the number of shares belonging to each shareholder of the fund are made from separate income accounts and are taxed when they reach the shareholder. Income from renting out in the RM real estate and movables. depending on the income earned during the given taxation year. This is related to the fact that each income component is distributed among the members of the associations. The share of the employee in the capital or income of such a fund must be transferred immediately to a separate account and it is forbidden to remove funds from this account before the employee reaches the retirement age. Taxation of Associations and Investment Funds An association is any organisation involved in enterpreneurial activity on basis of partnership and which is founded in conformity to the legislation. the staffs of diplimatic representative offices and their consultants are exempt from paying taxes on the income received in the RM. The diplomatic representative office and its staff are offered a preferential tax treatment and immunities for the purpose of fulfilling their duties. taxed at the rate of 15% and insurance and reinsurance contracts—at the rate of 2%. in a financial institution. which it is obligated to distribute to its shareholders. 5. The income of the qualified non-governmental pension fund is not taxable under the income tax. an economic subject-resident or a resident association. The assets and income of such a fund is kept in a separate account. Income tax calculations for investment funds if are subject to special rules. which have been signed in the RM. 2. Royalties and contributions on insurance and reinsurance contracts. 1. from sale of assets and form similar operations. Income fom work activity and services provided in the RM. Percentage interest rates received as a result of investing the funds of the IF. 3. these are: 1. 6) 7) The criterion for defining the income of the non-resident as received outside the borders of the RM is the impossibility to related the given income to the one received in the RM. Taxation of Economic Agents Non-Residents Any income received by a non-resident may be received either in the RM or outside its borders. The non-residents who receive taxable income in the RM are also granted deductions. Part 3. capital increases and percentage interest rates are types of IF income that are accounted for in a separate income account. which reduce the taxable income amount. Below are the conditions that non-governmental pension funds have to comply with: 1. Associations do not pay income taxes. Dividends paid by a resident economic subject.
the financial result on the entity involved in enterpreneurial activity. C) lodging expenses are established as 70 lei on the territory of the RM and 150 lei in Chisinau. The structure and procedure of determining business trips expenses on the territory of the RM and of CIS countries is regulated by the resolution of the RM government.000 lei. is adjusted (increased or decreased) for some expenses and revenues. repair and reconstruction of fixed assets. 3. which stipulates that: A) transportation expenses for travel within the RM and in CIS countries are reimbursed according to supporting documents or to the minimum ticket cost. The financial result of an enterprise for the year 2002 constituted 500. Norms and Regulations Used for Adjustable Expenditures The RM legislation includes the following norms and regulations relevant for adjusting expenses for taxation purposes: • Expenses related to the business trips of employees. Representative expenses. Capital assets operations results 2. B) diurnal expenses are reimbursed in the amount of 35 lei for each day spent on a business trip within the territory of the RM. Expenses unsupported by documented evidence. Expenses for the maintenance. % interest revenues on bank deposits 4. Fixed Assets . taking into consideration the provisions of the TC.000 lei.01. The amount of the subtraction during the taxation year on one or another category of property is determined by applying to the cost base of one or another category of property (at the end of the taxation year) the following depreciation norms: I property category—5%. if however. II category—8%. Income tax retained at the payment source amounted to 10. Part 2. repair and reconstruction of fixed assets does not exceed 10% from the cost base of the given property category. EXERCISE. except for the departure and return days. 1% of all the taxable income amount in accordance with the TC.5% of the net income received from the sale of merchandise (inventory turnover). III category—10%. The Determination of the Income Taxation Object Norms and Regulations Used for Adjustable Expenditures Income Tax Self-assessments of the Entities Involved in Enterpreneurial Activity Part 1. which is determined in conformity with the requirements of the National Accounting Standarts. Dividends received from residents Total adjustment of revenues 1. The determination of depreciation for taxation purposes.• • • Lecture 13. such expenses exceed 10% of the cost base of the fixed assets.2010. the subtraction of these expenses is allowed for that year. The Determination of the Income Tax Amount for Entities Involved in Enterpreneurial Activity 1. the surplus amount is defined as expenses for reconstruction and are classified into the fixed assets account. and the V category—30%.000 lei.1% of the taxable income. The provisions used for revenue adjustments are the following: 1) The result of capital assets operations are taxed at the rate of 50% of the sum. % interest revenues from the Central Bank 3. Donations for charitable causes. when diurnal expenses are reimbursed at • • a rate of 50%. IV category— 20%. and the amount payed in installments was 120. The Determination of the Income Taxation Object When determining the taxation object. In order to determine the sum of the taxable income. 2) Interest revenues on bank deposits and state bonds are not chargeable to taxation until 01. 2. If during a certain taxation year the expenses for the maintenance. the financial results sum is increased by the adjusted amount for revenues and decreased by the adjusted amount for expenses. It is allowed to subtract incurred and payed expenses related to the enterpreneurial activity and which cannot be supported by documented evidence in the amount of 0. Determine the amount of the income tax payable to the budget given the following data about the revenues and expenses of the enterprise: Indicators Amount indicated in the Financial Statement 10000 2000 3000 5000 Amount indicated for taxation purposes 5000 0 0 0 Difference (3-2) -5000 -2000 -3000 -5000 -15000 5000 1. It is allowed to subtract documented expenses for charitable causes in a sum that does not exceed 10% of the taxable income before accounting for the relevant exemptions stipulated in the TC. The maximum amount allowed for deductions as representative expenses constitute: 0.
Income tax payable to the budget=…………. Juridical persons calculate the annual taxation amount on real estate independently. 4) Juridical persons non-residents obligated to pay income taxes. or use assets located on the territory of the RM. Specific Details of Company Real Estate Taxation All juridical persons are payers of real estate taxes. The residue for the beginning and end of the period are collected in half. for social and cultural sercives or for the storage of material valuables. 2) Enterprises-residents with the status of an individual—individual enterprises and farms.09. . • Tax payable for the previous year. the follwing categories of entities involved in enterpreneurial activity are obligated to submit an income tax self-assessment: 1) Juridical persons residents. 3. 2. the person in charge is obligated to announce the taxation inspectorate within 5 days after the termination of activity about it. medical centers.03. a universal tax rate of 0.lei during the taxation year is obligated to pay not later than on the 31. organisational or legal structure. The resulting sum is divided into the number of months in the period. Expenses for Fixed Assets repairs 3. and the sum is payed to the budget in equal quarterly Part 3. 5. and.1993 by the Statistics Department. kindergartens. water springs. 30. for the fulfilment of technical functions unrelated to a change in the object of work. 3) Permanent representative offices of non-residents of the RM.. in correspondence with the data. Buildgings include blocks for production lines. Installations include petrol and gas wells.. dikes.12 of the taxation year the sum equal to one fourth of the: • Sum calculated as the tax payable for that year.-10000-120000=9000. 4.09 and 3. roads. ownership. following the taxation-reporting year. within 60 days. dormitories. for the management. Here. to submit an income tax self-assessment for the entire period of the reporting year.1% from the cost of the real estate objects was imposed on all the juridical persons.. Income Tax Self-Assessments of Entities Involved in Enterpreneurial Activity According to article 83 of the Taxation Code. Specific Details of Juridical Persons’ Real Estate Taxation Specific Details of Natural Persons’ Taxation General Overview of the Land Tax Land Tax Calculations for Juridical and Natural Persons Real Estate Tax and Land Tax Allowances Part 1. which have in possession.Depreciation 2. Incurred expenses related to the Central Bank Total adjustment of expenses Taxable income=500000+(-15000)-1000=484000 Income tax=484000*15%=…………. The self-assessment must be submitted to the GNS at the place of registration (the endorsement of the fiscal code) not later than the 31 March of the year. The average annual value of the taxable real estate objects is defined as the average chronological. whose taxation obligations exceeded ……. during which the company was involved in enterpreneurial activity. and fences. and housing stocks on the balance of the enterprise. the taxation objects are the buildings and installations included in the fixed assets in accordance with the “Fixed Asset Classification Blueprint for the Economy of the RM” approved through resolution №40 from 16. with the exception of public authorities and state institutions. Installations create conditions for the normal execution of production process. -2000 -2000 1000 Lecture 14. with the exception of housing-construction and garage-construction cooperatives. 30. resort houses. irrespective of the ownership type. If the taxpayer termintates the activity during the taxation year. The taxpayer. viaducts.06. In 2007. and paved areas of the enterprise. bridges. Real Estate Tax 1. Buildings are constructions aimed for the creation of work or living conditions. departments. sum of the remains for each month of the reporting period.
For buildings of over 100 m2.91 lei Total real estate tax amount: 59. which apply to hayfields and pastures and to all other agricultural grounds. These rates are defined as base rates and are applied for the calculation of the real estate tax on housing blocks. Part 2. lei 233595 232450 369305 2. breeding nurseries.000 lei.5 times=28. registered with the right to ownership.1 %*1. Example: The total cost of the real estate property of a citizen residing in a village ammounts to 90. used for agricultural plants. as well as contracts for the rent of land in cases of rental arrangements. The cadastre register contains qualitative and quantitative information about the land sections within the borders of the village. land is used against payment.25=75. Specific Details of Natural Persons’ Taxation The calculation of the real estate tax for natural persons is carried out in relation to the cost. which are still work in progress. Real estate taxation subjects are natural persons who own real estate.02 + 23. the base rates are increased as follows: 1. the size of the land area. [(90000-68000)+(68000 / 182*100)]*0.2%. The taxation objects include: • Housing. the number of the issued document. according to the rent contract.1=300.5 times Period January February March Balance cost of the real estate at the beginning of the period. which prove the possession right of the land area.21 lei. possession or use. area and location of the real estate.84 lei 300. 4. It is in the competency of local public authorities to issue documents.1%. irrespective of the use duration. etc. purpose or location of the land area. including privatised items • House possessions • Apartments in Housing Association • Constructions and installations on country house land • Garages for the storage of personal vehicles Objects.29 lei. possession or use of a land area and who qualify as the owners of the land. The rates of the land tax are established per unit of area in conformity with the category and location of the land. For the land that belongs to the state and is rented out. In other municipalities and towns—0. The cadastre register of the landowners contains the cadastre information about all the registered landowners. 68000 /182*50*0.84*0.02 lei 68000 /182*32*0. Balance cost of the real estate at the end of the period.000 lei. which is the real estate tax for the quarter. situtated on the territory of the RM. Part 3.36 lei. also constitute taxation objects. The land tax objects are the land areas offered into the ownership. In rural areas—0. the land tax is payed by the tennant. The stipulated rates are imposed on housing estates (main buildings).91= 111. The payers of the land tax are juridical and natural persons. The real estate tax on natural persons is transferred to the budget on August 15 and October 15 of each year.1%=59. sections covered by multiannual plants.installments.36 + 28. certificates proving the right to temporary use of land. This register contains other information as well: the address of the user. These . 3.02% of the real estate cost. Agricultural grounds are the land sections such as arable lands. The total area of the house constitutes 182 m2. with the main building of less than 100 m2.1 %*2 times=23. Agricultural grounds are taxed through two rates. pastures. • From 100 to 200 m2 by 3 times • From 200 m2 by 28 times • • • In the municipalitie Balti—0. and its utilization purpose. General Overview of the Land Tax In the RM. hayfields. The cost of the house constitutes 68. lei 232450 231305 367903 From 150 to 200 m2 by 2 times From 200 to 300 m2 by 10 times From 300 m2 by 15 times The real estate tax for the year=(2333595/2 + 232450 + 369305 + 367903 /2 ) / 3*0. who have been granted with the right of ownership. Both registered and unregistered property with the cadastre authorities is taxable according to the following procedure: • In the municipalitie Chisinau —0. not later than the 20th of the month following the reporting quarter. From 100 to 150 m2 by 1. the general area of which does not exceed 100 m2. town or district.3% of the real estate cost.
and sports with the exception of resort institutions and monuments of nature. Organisations and enterprises of associations for the blind. Scientific organisations. Enterprises. •In rural inhabited areas—1 leu per 100 m2.5 lei for 1 point-hectar. The taxpayers who have paid the land tax for the current year before the 30th of June have the right to a 15% discount from the sum of the payed tax. The following persons are exempt from real estate taxation: 1. For 2007. 7. These categories of citizens (with the exception of desabled persons of category I and II with the disability from childhood) are exempt from tax in case they do not live together with a working family member. Orhei. Edinet. Desabled persons from category I and II. 2. 4. b)For lands occupied by industry. 3. •In other municipalities. Land Tax Calculations for Natural and Juridical Persons The sum of the land tax payable to the budget is determined through the multiplication of the land area with the cadastre value (only for the areas which had been assigned a cadastre value) and with the tax rate. lands belonging to the forestry and water funds not used for industrial activities. 8. and the disabled. botanical gardens. Real Estate Tax and Land Tax Allowances The following entities are exempt from real estate taxation: 1. organisations. Persons who have reached the age of retirement. For agricultural lands: • For all land areas with the exception of hayfields and pastures: lands assigned with a cadastre value—1. art. 3. education. research institutions with an agricultural or forestry focus and which use lands for scientific and educational purposes. cinematography. Religious organisations for the real estate aimed for conducting cult ceremonies. 6. participants to the liquidation of the accident consequences at the Cernobil APP). the military operation in Afganistan. Reserves. Part 4. and Ungheni municipalities—4 lei per 100 m2. for agricultural purposes. agricultural enterprises and lands with other special purposes: •In the Chisinau and Balti municipalities—30 lei per 100 m2. Objects of civil protection. Taraclia. 6. Part 5. the following land tax rates were used: 1. transportation. d. Families of the deceased during the military operations for the protection of the territorial integrity and independence of the RM. towns. 2. deaf. and for areas that had not been assigned a cadastre value—110 lei per ha. farms as well as natural persons who. have received degraded land areas. Soroca. The land tax is payed to the budget in equal amounts and not later than on the 15th of august and 15th of October of the current year. 5. history and culture financed either from the state budget or by unions. Institutions of culture. health care. Enterprises of penitenciary institutions. 7. with a disability from childhood. Land areas allocated for the permanent use of common railways. Selected categories of natural persons: a. The areas of land located within inhabited regions are sections within their borders and in the possession of the local public authority. Institutions financed from the budgets of any levels. or with an estimated cadastre value. Areas of the state border. b.rates are set for 1 ha of land. the area of which equals to 1 ha and the quality indicator is of 1 point. . 1 point-hectar of land equals the sector.75 lei per point-hectar and those without a cadastre value—55 lei per ha. • For lands allocated for hayfields and pastures: those with a cadastre value— 0. Causeni. 4. institutions. gardens and garage cooperatives: •In the Chisinau and Balti Municipalities—10 lei per 100 m2. Land areas of general use situated at the border of inhabited regions. have recultivated and restored them (the allowance is offered for the initial 5 years of utilization). and the liquidation of the accident consequences at the Cernobil APP. c. For lands within inhabited regions: a)For lands occupied by housing blocks. Cult institutions. and rural inhabited areas—10 lei per 100 m2. Hincesti. 2. fish farms for the water areas of the lakes. communications. Disabled persons of category III (participants to the military operations for the protection of the territorial integrity and independence of the RM. 5. Diplomatic representative offices on real estate granted on reciprocity grounds and which do not entail rent payments. •In the Cahul. participants to the military operation in Afganistan. national parks. either without an estimated cadastre value for 1 point-hectar of land. •In towns—2 lei per 100 m2.
07. the VAT is calculated in conformity with section III of the TC. repair and road maintenance works as well as for the international vehicle transit. with the exception of the goods imported by natural persons for personal use and consumption. 2. in accordance with the engine volume: Up to 1500 cm3—54lei From 1501 to 2000 cm3—108lei From 2001 to 2500 cm3—360lei Over 2500 cm3—900lei Minibuses and busses. road installations and equipment set up adjacent to the road.1998. which is included in the price of goods and services and is therefore played by the consumer. 0% for the following: • • • • • • The charge from the owners of vehicles registered in the RM is retained not later than on the 31st of July. as well as a part of the cost of taxable goods and services imported into the RM.-from 25 to 40 places—1440 -over 25 places—1620 Lecture 15. 2. these result from economic activity on the territory of the RM or from goods and services imports into the RM. Charges for the transit of the RM roads by vehicles not registered on the territory of the RM. The Economic Essence of the VAT VAT is the indirect tax. The TC stipulates that the VAT is a republican. Special Road Charges The law on the Road Fund of the Republic of Moldova stipulates the followng formation sources for the the fund: Deductions from the excises on automobile petrol and diesel. Permit release charges for the passage of vehicles exceeding volume and wheight load on the axle limitations as well as for executing works on the protection zone of roads. The taxation objects are the deliveries of goods and services by the taxation subjects. who do not have tax relations with the budget of the RM and who are using its territory for transit. Fines for damaging roads. Part 1. irrespective of the date of the technical revision. made by the indicated persons. Cars. Starting from 01. 1. Lecture 16. Charges from juridical and natural persons for the issuance of licences for the execution of transportation works and of construction. The VAT objects are: 1. with the exception of natural persons who are importing goods for personal use and consumption 3. Juridical and natural persons who are importing services defined as taxable deliveries. Charges for the utilization of roads from the owners of vehicles registered in the RM. The Value Added Tax The Economic Essence of the VAT Deliveries Exempt from VAT VAT Administration (the Registration of the Subject and the Declation of the VAT). the rates are established in lei: Motorcycles—36lei. in accordance with the number of seating places: -up to 11 places—900 -from 12 to 17 places—1080 -from 18 to 24 places—1260 . 3. The TC stipulates 4 types of VAT rates: 1) 2) 20% of the taxable value of the taxable deliveries of standard goods. state tax and represents a method of extracting for the budget a part of the cost of the taxable goods delivered and services provided on the territory of the RM. Juridical and natural persons registered or who must register in accordance with the requirements for the registration of taxation subjects. applied to users. Juridical and natural persons who are importing goods.
10. cash. The services of the town public transport.000 limit. Health and elderly care services. Goods of own production of university and school cafeteria. share issuance. land and land areas under housing blocks. operations related to the maintenance of deposit accounts.000 lei within the last 12 months. The latter must cancel the registration of the VAT payer.000 lei from taxable deliveries of goods and services within the last 12 months. pastry. and the right to furnish and rent them out. The notification is satisfied if the following requirements are met: 1) The taxation subject stops the execution of taxable deliveries. financed from the budget. cultural. 8% for bread. 13. State property bought during the privatisation process. 15. written in accordance with the sample. administrative and technical personnel of the representative offices goods and services of the international organisations in accrodance with agreements to which the RM is a party. Ritual services. for the personal use and consumption fo the members of the diplomatic. This should be done in the month following the date when the value of deliveries exceeded the 200. 12. hostel residences. Services related to housing rental. Housing. In case of termination of VAT taxable deliveries. Part 3. which are transferred for free to the public authorities. with the exception of commission deals. bonds. clubs. VAT is not imposed on the following deliveries: 1. 7. the economic subject must submit to the taxation authority a request for registration. school textbooks. adaptation milk mixtures. Services. before the end of the month following the last reporting month. and bank notes management. which have been transferred into the possession of the state. 11.000 lei.• • • 3) 4) goods and services to be exported. and socio-cultural institutions. 2) The taxation subject has delivered goods and services costing less than 200. 9. books for children) 3. Import goods in case: they constitute aid for natural disasters situations. insurance and reinsurance services. 14. must mandatorily register with the taxation authorities. Financial services: the granting and transfer of loans. on which state dues are imposed. during which he was obligated to submit the official notification. The post office services. or if the goods are imported temporarily with the obligation to export during the period stipulated in the customs legislation. 2. or standard rate as well as the deliveries of import services. This limit is set at the level of 200. Pre-school insitutions. their rent. This means that the economic subject who has been receiving a return exceeding the limit of 200. 4. 5. homogenised juices. military operations and as humanitarian aid. VAT payable to the budget = VAT received from buyers for goods – VAT payed to the suppliers for primary materials and for imports. The cancellation of the VAT payer registration enters into force on the date of the taxable deliveries termination by the subject. hospitals. operations related to currency. as well as railway and river transport. the taxation subject is obligated to notify the state tax service about the termination. The VAT declaration is completed by the payer independently and is submitted to the taxation authorities monthly. milk and dairy products 5% for natural gas and for agricultural products. investment fund management services. In this case. Food and non-food goods for children (children food. housing and community purposes. . It is notable that taxable deliveries include deliveries of goods and services taxed at the zero. debentures and other securities. The subject is considered registered on the 1st day of the month following the month. and other objects of social. 6. scientific works. and utility services offered to the public. Deliveries exempted from VAT In accordance with the TC. including all types of passenger and freight transportation goods and services intended for the official use of diplomatic and other similar representative offices in the RM. VAT Administration (the Registration of the Subject and the Declation of the VAT) The criterion for the mandatory registration is determined through the established limit of the total value of taxable deliveries within any 12 consecutive months. In order to register. including the delivery of pensions and compensations. it can still deliver the goods and services exempt from VAT. Confiscated property or items without an owner. except for the services of insurance agents. Part 2. transit goods. resorts. 8.
excises are regulated by the fourth section “Excises” of the Taxation Code of the RM (Law # 1053-XIV from 16. liquers. transported. but not less than2.The sum of the excise payable to the budget is determined on basis of the excise rates stipulated in section four of the TC.70 lei 3. Beer 5.50lei 10%. or which are imported for sale on the RM territory.70 lei 1200 lei 1200 lei 10% 10% Lecture 17.01. Classical sparkling wines 7. or who import excise goods into its territory. where the following excise rates are established: Excise goods 1. and tobacco products that are sold. or—for the goods produced in the RM—at the moment of their unloading (transportation) from the excise room. audio and video equipment. per value added of the market value of the good. Cigars 11. administrative and technical personnel of the representative offices as well as by their family members residing with them.06.50lei 0. Wisky. in addition to excise goods purchased from economic subject from Transnistria must be stamped with excise labels. 2. Juelry items Measurement Units Price in lei Price in lei Price in lei 1 litre 1 litre 1 litre 1 litre 1 litre of absolute alcohol 1 litre of absolute alcohol 1000 items 1000 items 1000 items 1 tonn 1 tonn Price in lei Price in lei Excise Rates 10% 20% 25% 1. Perfumes 16. caffeinated and decaffeinated 2. or stored on the territory of the RM. cognac. 3. Sturgeon black caviar 4.09 lei / % volume / litre * 1240 lei 8. with the exception of medical spirit 9. Excises Calculation Procedure Part 3. The labelling is executed either during the production process before the excise products are imported. cars and licences for gambling services. Natural sparkling wines 8. Coffee.2000). sent as humanitarian aid or technical assistance. The taxation objects include: alcohol drinks. juelry. General Overview of Excises Excises Calculation Procedure Allowances on Excises Part 1.2001. The excise rates are established in absolute amounts per measurement unit of the good. From 01. Cigarettes containing tobacco with filter 12. processed and nprocessed. petrol and diesel fuel. Cigarettes without filter 13. Excise Allowances Excises are not imposed: 1) At the import of excise goods. Petrol 14.50lei 10%. spirit liquers and divines 10. for the personal use and consumption fo the members of the diplomatic. the taxation subjects are juridical and natural persons. For excises. but not less than2. who process or/and produce excise foods on the territory of the RM. but not less than2. Diesel fuel 15. 2) At the export of excise goods . or per value added of the gambling licence cost. offered by state. Red caviar 3. Excises 1. Champagne 6.00 lei 10%. General Overview of Excises Excises are the universal state taxes established for selected consumer goods and for gambling services. governmental or international organisations and of goods intended for the official use of diplomatic and other similar representative offices in the RM. tobacco and tobacco products. rom. as well as juridical persons involved in gambling services activities. Excise goods such as vodka. Part 2. Ethil alcohol with a spirit concentration of 80% of the volume or higher.
3. which cause or may cause significant material damage to the local producers.3) 4) 5) 6) When excise goods are brought (sent) under temporary customs regimes. 4. The taxation subject. a cusoms duty is defined as the mandatory payment subtracted by the customs authorities for the entry of goods on the customs territory of the RM or for the removal of goods from its territory. Specific duties are calculated per unit in accordance with an established rate (liquers—1 Euro per 1 litre). customs wearhouse. General Overview of Customs Duties According to the law on customs tarrifs. When foreign excise goods are placed in customs processing regime and under customs supervision At the exit of domestic products placed under the customs regime of reimport or under processing outside the customs territory. placed under the customs regime of re-exports. cigars (50 items). Lecture 18. The taxation subject is allowed to reckon the excises paid for intermediary excise goods. which have the purpose to protect the local production and are imposed at the entry of foreign goods on the customs territory if they are in a quantity and under conditions. which are reimbursed at the exit of the processed goods from the customs territory. . but only with the condition that he/she holds documents proving the payment of excises for the intermediary goods. audio equipment and televisions— one item for each category. the goods are subjected to excises. cigarettes (200 items). The customs tarrif is a catalog. For natural persons importing: pure alcohol (1 litre). which includes the nomenclature of goods brought to and removed from the customs territory of the RM. Combined duties combine the value added and specific rates (this type is not used in the RM at the moment).5%). When foreign excise goods are placed in a processing customs regime on the customs territory. Value added duties are calculated in percens from the customs value of the good (eg. which have been used during the processing and/or production of other excise goods. as well as the customs duties’ rates imposed on such goods. Customs Duties General Overview of Customs Duties Calculation Methods of the Customs Value of Goods Calculation Procedures of the Customs Duties Allowances on Customs Duties Part 1. who exports excise goods. the following procedure applies: at the entry. 1) 2) 3) 4) a. for shampoo this rate is 6. Anti-dumping duties are used if the goods brought into the customs territory are priced at a lower rate than they are on the domestic market of the exporting country (the domestic price is taken at the moment of entry) in case this price can cause harm to the domestic producers. the sums payed at their entry on the customs territory are reimbursed. 1. b. 2. spirits (1 l). which are divided into the following: Special duties. free customs wearhouse. will receive the sum of the excises paid for the excise goods used for the processing and / or production of the exported goods within 10 days after the relevant documented evidence is submitted. There are the following types of customs duties: At the removal from the customs territory of foreign excise goods. Exceptional duties. if they are in transit. beer (5 l). vehicle fuel with the condition that it is located in one container of the vehicle. or are destroyed or rejected in the interests of the state.
Export of goods-0. can be determined in accordance with 1) The price of the deal. Beer—€1 per liter Perfume and eau de cologne-6. For example.11-20. the customs Also.5 per km of mileage Part 2. 8. Part 4. with the exception of the cases provided for in the legislation or in international agreements. Each method for determining the customs value of the merchandise has its specific features. in case this already has or may have a negative impact on the interest of the local producers. 3) The price of a deal.12 . Calculation Procedures of Customs Duties In addition to customs duties. 5. 1. Brokerage fees. 5. 2.10%. fuel and food necessary for the their operation in transit. Licence and other payments for the utilization of intellectual property rights. Exercise: An amount of orrange juice in the sum of 235212 lei is imported. The storage of merchandise in the customs wearhouses: in the first 10 days—€0. not exceeding €900 for merchandise valued over €1000. the following customs duties rates apply: 1. Commission fees. 3. 8.04-30. which enter the customs territory. Determine all the taxes. each consecutive method is used if the previous method could not be applied. 3.1 for each kg per day of storage. These rates are universal and unchangeable. Insurance costs. Compesation duties are used if the production or export of the goods brought into the customs territory relied on direct or indirect subsidies.60 lei 2) Customs charges = 235212 *0. Container.04 . Part 3.25% of the customs value of the merchandise. Vehicles used for the international transsportation of passengers.03) * 20% = 49512. The customs legalization of the temporary import and export of property— €30. 9.12 . 4. package and packaging costs. 6. 9. when appling the first method. Loading costs.13 lei.03 lei 3) VAT = (235212 + 11760. .10 .12-31. authorities retain charges for the execution of customs procedures. 2. 7. 0. the object of which is the particular merchandise.03 . the object of which is a homogenous merchandise. 4.5 for each kg per day of storage. the object of which is the particular merchandise. 1.5% Unprocessed fur and leather KRS-0% Leather clothing-15% Cotton fabric-0% 7. to which the RM is a party. Expenses for the delivery of the merchandise to the airport or another place of entry of the merchandise on the customs territory. Methods for the Determination of the Customs Value of Goods The customs value of the goods.25% = 588. the determination of the customs value of the goods is done in accordance with the price of the deal. other methods apply. the object of which is an identical merchandise. Butter—15% Margerine—5% Orange juice—5% Fresh tomatoes: 1. or which had been purchased abroad for repair purposes. In this case. 2) The price of a deal. Allowances on Customs Duties The following are exempt from paying customs Duties: 1.20%. 6. 3) 4) Customs legalisation of the merchandize: € 5 for merchandise valued from € 50 to 1000. If this method cannot be used. 1. which are imported or exported for the official use of foreign citizens in accordance with the legislation or international agreements. 21.15%.c. This entails the following types of customs procedures and charge rates: 1) 2) The rates of the customs duties and the list of goods to which these rates apply are established by the Parliament. Transportation costs. the price of the deal includes the following components: 1. to which the RM is a party. Goods.60 + 588.10%. 4) The unit price of the goods. as well as items for the vehicles’ technical support and maintenance. 2. which are calculated according to the value of the merchandise and the rate stipulated in the customs tarrif. 6) The reserve method Usually. duties and charges payable at the moment of crossing the border.15%. luggage and freight. in the latter calendar days—€0.05-31.01-31. 5) The estimated value of the merchandise. 1) Customs duties = 235212 *5% = 11760. Unloading and transfer costs.
with the condition that its purpose is proved through documented evidence.3. 4. 5. Merchandise transiting the customs territory under customs supervision in transit regime to third countries. imported or exported temporarily under customs supervision. in conformity with the corresponding customs regimes. provided free of charge (donations) or for charitable causes through state channels. Merchandise. . 7. with the exception of coins and notes used for numismatic purposes. 6. Merchandise imported or exported as humanitarian aid. Goods imported or exported as aid. as well as secturities—in accordance with the legislation. National and foreign currency.
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