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Content Introduction……………………………………………………………….…………3 Chapter 1. Theoretical approaches of Value added tax………………...……..5-22 1.1.

General notions referring Value added tax. …………………………….........…...5 1.2. Taxable supplies and deliveries exempt from VAT…………………….……..…7 1.3. Registering the subject of taxation, cancelling the registration…………………12 1.4. VAT rates. Determination of tax liability terms………………………………...13 1.5. Fiscal period. Determination of tax liability to VAT………………..……...…..16 1.6. VAT refund……………………………………………………………………..19 Chapter 2. Calculation and analysis of Value added tax in Republic of Moldova………………………………………………………………...……..…23-32 2.1. Value added Tax calculations ……………………………………...….………..23 2.2. Comparative analysis of VAT with other taxes based on benchmarking indicators………………………………………………………………….....………26 2.3. The evolution by sectors of Value added tax in Republic of Moldova…..….….31 Conclusion……………………………………………………………………..…….33 Bibliography………………………………………………………………...….……34 Annex……………………………………………………………………………….

Introduction The globalization of trade and finance has profound implications on the patterns of taxes. Developing countries used to rely heavily on trade taxes, seigniorage and financial repression as the main sources of fiscal revenue. The supply of services is defined as being the activity of providing any services, including the transfer of property under rental, usufruct, operational leasing and other arrangements, the provision of assembling and building work, etc. The tax law describes the supply of goods as being the transfer of ownership over goods by selling, exchanging or free (partly-paid) transfer, including in kind salary payout, transfer of goods under a financial leasing arrangement, etc. The VAT is a state tax and a form of collection to the budget of part of the value of delivered goods and provided services that are subject to taxation in Moldova, as well as part of taxable goods and services imported to Moldova. Value Added Tax, is levied on top of the cost of a product or service and generates revenue for a government. Value Added tax, popularly known as „VAT‟, is a special type of indirect tax in which a sum of money is levied at a particular stage in the sale of a product or service. In 1954, the value added tax system was initiated by the then joint director of the tax authority of France, Maurice Laure. VAT came into effect for the first time on 10th April, 1954. From its inception, the value added tax system was imposed on all major sectors of France - the first country to use this system. Once instituted, it was immediately clear that revenues collected from the VAT system constituted a substantial share of the government‟s revenue in the French economy. Not surprisingly, due to the ease of payment and ready comprehensibility, the value added tax system has been adopted by different nations across the world. The value added tax system deals with these problems quite efficiently. As VAT is imposed on value addition - at every single stage - there is no incidence of cascading. In this way, the final consumers bear the burden of paying value added tax. This system involves absolute transparency at every stage of taxation, thereby making the tax system quite comprehensible and simple. The Moldovan tax system is evolving rapidly. The direction of reform is generally positive, although it is sometimes unpredictable. The Tax Code has been revised frequently. The Tax Code describes the supply of goods as being the transfer of ownership over goods by sale, exchange or free (partly-paid) transfer, including in kind salary payout, transfer of goods under a financial leasing arrangement, etc. The Moldovan tax system has a number of excellent features. The collection of the Value-Added Tax (VAT) is very high compared to other countries with similar tax rates. Actuality of the research topic. Today, the VAT is a major part of the tax system in over 136 countries, raising about one-fourth of the world's tax revenue.There is a

modern, comprehensive tax code, integrating tax administration and substantive tax legislation in a single, accessible source. The purpose of this exercise is to highlight in an internationally comparative framework the overall and specific performance of the Moldovan Value -Added Tax. In the Introduction is argued actuality, is formulated the purpose of project, and is summarized the concept of the paper. Chapter 1. “Theoretical approaches of Value added tax” presents an overview about the principles and basis of VAT, delivering, registration, rates, exemptionson value added tax. Chapter 2. “Calculation and analysis of Value added tax in Republic of Moldova” is devoted to study the calculation methods of VAT, to investigate the progress of Value added Tax in Republic of Moldova during past years.

1.1.General notions referring Value added tax The VAT is a state tax and a form of collection to the budget of part of the value of delivered goods and provided services that are subject to taxation in Moldova, as well as part of taxable goods and services imported to Moldova. Value Added Tax, is levied on top of the cost of a product or service and generates revenue for a government. Thereby, according to the Tax Code of the Republic of Moldova are defined the following notions. 1) Value added tax (hereinafter called VAT) – a general state tax representing a form of payment to the budget of a portion of the value of goods supplied and services provided subject to taxation on the territory of Republic of Moldova, as well as of a portion of the value of all taxable goods and services imported into Republic of Moldova. 2) Goods, tangibles – are the products of labor in the form of items, consumables and products for technical and economic purposes, buildings, constructions and other real estate property, intangible assets. 3) Supply of goods – the transfer of ownership rights on goods through sale, exchange, gratuitous transfer, transfer with partial payment, in-kind wage payment, other in-kind payments, and sale of pledged goods on behalf of the holder of collateral, transfer of goods on the grounds of financial leasing contract transmission of goods by the principal to the broker, by the broker to the buyer, by the supplier to the broker and by the broker to the principal within the implementation of the commission contract; 4) Supply (provision) of services – provision of tangible and intangible consumption and production services, including renting property, location, life interest, operational leasing, transfer of rights to use any goods against payment, partial payment or free of charge; construction and assembly activities, repairs, scientific research and development, experimental and design works, and other types of works done against payment, partial payment or free of charge service provision activity by the fiduciary administrator to the buyer and by the fiduciary administrator to the founder trustee within the performance of fiduciary administration contract. Services provided by the fiduciary administrator to the buyer within the fiduciary administration contract are considered performed delivery by the founder trustee to buyer. 5) Partial payment – the incomplete fulfillment by the buyer of his/her obligations toward the supplier. 6) Taxable supply – supply of goods, provision of services, other than supply of services and goods that are exempt from VAT, by a subject of taxation as part of entrepreneurial activity 7) Goods for personal use or consumption – items used to meet the needs of the owner and /or members of his/her family. 8) Import of goods – bringing in goods on the territory of the Republic of Moldova in accordance with customs legislation.

9) Import of services – services provided by the non-resident legal and physical entities in Republic of Moldova to resident or non-resident legal and physical entities of Republic of Moldova, where the place of rendering services is considered Republic of Moldova. 10) Export of goods – taking out goods from the territory of the Republic of Moldova in accordance with customs legislation. 11) Export of services – services provided by legal and physical entities residents of Republic of Moldova to legal and physical entities non-residents of Republic of Moldova outside the territory of Republic of Moldova. 12) Specific relations – special relations inherent and applied only to a certain subject or circumstance different from relations with similar subjects or circumstances. 13) Zero Rate – a VAT rate of zero percent. 14) Agent – a person who acts on behalf of another person, but is not his/her employee. 15) Place of delivery of goods, services – place where delivery is made according to rules provided for in articles 110 and 111. 16) Fiscal invoice – a standard form of primary document with special regime, submitted to the buyer by the taxable subject, registered in due order upon carrying out taxable deliveries. 17) Customer (buyer) – natural or legal person who is supplied values 18) Investment (expense) capital – expenditure by economic agents in connection with the purchase and/or create long-term assets, productive purpose, which is not reflected in current period results, but are sought to increase the value of assets term. Assets intended for long term productive assets which wear is assigned relate to the cost of manufactured products (servoces, works performed). 19) The general electronic invoices – electronic register established and administered by the State Tax Inspectorate, which, according to the art. 1181, record invoices. Following are the subjects of taxation: a) legal and physical entities registered or have to be registered in accordance with Articles 112 and 1121; b) legal and physical entities importing goods, except physical entities who import goods for personal use or consumption, the value of which does not exceed the ceiling stipulated by current legislation; c) legal and physical entities importing services whether or not they are registered in accordance with Articles 112 and 1121. 1) Taxable items are: a) delivery of goods and services by subjects of taxation representing the outcome of their business activity in Republic of Moldova; b) imports of goods and services into the Republic of Moldova, except goods imported by physical entities for personal use or consumption, the value of which does not exceed the ceiling stipulated by current legislation.

c) imported services in Moldova. 2) Nontaxable items: a) the supply of goods, services inside the free trade area; b) as interest income received by the lessor under a lease; c) the supply of goods and services for free for advertising and/or encouraging annual sales worth 0.2% of revenue from sales made during the year preceding the year in which the delivery is made; d) transfer of ownership in the entity reorganization. 1.2. Taxable supplies and deliveries exempt from VAT 1) The taxable value of taxable supply is the value of the supply paid or payable for that supply (less VAT). 2) If the payment for delivery is partially or entirely paid in-kind, the taxable value of the taxable supply is the market value, which is determined in accordance with art. 5 parag. 26) and art. 99. 3) The taxable value of taxable supply includes the total amount of all taxes and fees payable on the supply, less VAT. 31) When applying the indirect methods and sources of calculating the amount of tax liabilities, the taxable value of taxable delivery shall be considered the estimated value in accordance with Art.225 4) The taxable value of taxable delivery of goods (services) carried out by a subject of taxation cannot be smaller than production costs or the purchasing price of delivered goods, or the customs value of imported goods calculated in accordance with article 100, or the cost price of service provided, except when the goods are no longer consumable, which is confirmed by authorized bodies and services. Provisions of this article shall not be applied in case of deliveries of goods and services for which prices are fixed (regulated) by the state and in case of sale at auction of the property of debtors, against liquidating their arrears, and also for the delivery of primary agricultural production of own manufacturing. The provisiona of this article shall not apply: - if it deliveres goods, services for which prices are set (regulated) by state; - for sale at auction of property of debtors, their arrears settlement account; - own manufacturing production deliveries of plant production and horticulture in kind and own manufacturing production from livestock in kind, live weight and slaughtered by farmers businesses. 5) The taxable value of taxable delivery of assets subject to depreciation is the book value or market value, whichever is highest. The taxable value of taxable supply of goods and services shall be adjusted after their supply or payment provided that the following confirmation documents are submitted: a) the previously agreed value of the taxable supply has changed because of a change of price;

b) the taxable supply has been partially or entirely refunded to the subject of taxation that made the delivery supply; c) the taxable value of a taxable supply was decreased due to a discount given. The taxable value of imported goods is theirs customs value, determined in accordance with Customs legislation as well as taxes and fees which will be paid at import of such goods, excluding VAT. In the absence of documents confirming the value of imported goods, or in case of reducing by the importer of the value, the taxable value will be detemined by the Customs authorities as established in parag.(1) and in accordance with rights granted to these authorities by legislation. The value of taxable delivery may be different than that set out above in the following situations: Deliveries made for less than their market value, free of charge, in lieu of wages: 1) A delivery made for less than the market value because of a special relationship between the supplier and his/her customer, or because the customer is an employee of the supplier is subject to taxation. The taxable value of the respective delivery shall be its market value. 2) Goods or services delivered to a subject of taxation for the purpose of his/her entrepreneurial activity, goods of captive production which consequently are transferred free of charge to any employee of the subject of taxation, and services provided free of charge to any employee of the taxable subject shall be treated as taxable deliveries. The taxable value of this delivery shall be its market value. 3) Goods, services delivered to a subject of taxation for the purpose of his/her entrepreneurial activity, goods of captive production which subsequently are appropriated by this subject or transferred to members of his/her family shall be treated as a taxable delivery of this subject. The taxable value of the delivery of goods, services shall be the price paid by the subject for the delivery purchased for the purpose of entrepreneurial activity, and in case of goods of captive production their market value. 4) Goods, services delivered to a subject of taxation for the purposes of his/her entrepreneurial activity, which consequently are transferred to other persons shall be treated as a taxable delivery made by this subject. The taxable value of this delivery shall be the price paid by the subject of taxation for the delivery to be used for his entrepreneurial activity. 5) Goods, services delivered to a subject of taxation for the purpose of his/her entrepreneurial activity, goods of captive production, services rendered in lieu of wages of employees of the subject of taxation, shall be treated as a taxable delivery. The taxable value of the delivery shall be its market value. 6) The market value of the taxable delivery shall not be less than its selling price. (art.99) According Tax Code of the republic of Moldova, from VAT are exempt following deliveries:

1) VAT shall not be applied for the import of goods, services and deliveries of goods, services of subjects of taxation which are the outcome of their business activity in Republic of Moldova: 1) residential housing, land and their rent, the right to housing and land tenancy and rent, except for commission fees for housing and land transactions; 2) goods of heading No 040229110, 190110000, 490300000, and food for children of tariff positions 16021000, 20051000, 200710100, 200710910, 200710990; 3) state property bought as a result of privatization; 4) pre-school institutions, clubs, sanatoriums, and other facilities for social, cultural and housing purposes, as well as roads, electrical lines and substations, gas supply networks, underground water pumping plants and other similar objects, transferred gratuitously to the central and local public authorities (or, under their decision, to specialized enterprises, which use such objects solely for their intended purpose), as well as facilities transferred gratuitously to enterprises, organizations, institutions by central and local public authorities; state property transferred gratuitously from one state enterprise to another state enterprise, or from one municipal enterprise to another municipal enterprise according to the decision of public authorities; technical expertise, exploration, construction and rehabilitation works, including attracting financial donations from legal and physical entities for items included in the list approved by the Parliament; 5) goods, services of education institutions related to instructive, production and educational process, provided that funds raised from the delivery of such goods and services are allocated for educational purposes; personnel training and development services; services for training children and teenagers in coteries, workshops, studios; services to children and teenagers for the use of gym devices; services related to supporting children in pre-school institutions; 6) services (actions) performed by the authorized bodies for which a state duty is charged; all types of activities related to taxes and fees collected by the state for issuing licenses, registration and patents, as well as fees and duties levied by central and local public authorities; services rendered by lawyers and notaries, real estate registration services and issuing extracts from the real estate register services of state registration of legal persons and individual entrepreneurs and providing information from respective state records; 7) services related to patent and licensing issuing operations (except for mediation services) related to the industrial property, as well as to obtaining copyrights; 8) seized property, property in abeyance, property which was legally transferred into state ownership as a result of succession of patrimonial rights, property of bankrupt entities, treasures; 9) services provided for supporting ill and elderly persons, as well as goods for packages to be gratuitously transferred to poor elderly persons by charitable organizations; 10) medical services, except cosmetic services; medicine raw material, other materials, items, primary and secondary package used for the preparation and production of medicines approved by the Ministry of Health, except ethylic alcohol,

cosmetics; prosthetic and orthopedic appliances and medical equipment(tariff position 9021); vouchers (including without accommodation) to resort and health care houses packages of touristic services; technical means, including motor transport, which can be used solely for the purpose of prevention and rehabilitation measures for the disabled; 11) goods produced by university and school canteens, by canteens of other education institutions, hospitals, pre-school institutions, as well as by the canteens of other social and cultural organizations and institutions, partially or entirely financed from the budget, as well as canteens providing catering services to poor elderly persons from the proceeds of charitable organization. 12) financial services: a) granting or transferring credits, credit guarantees, any warranties for cash transactions and crediting, including management of loans, credits or credit guarantees by creditors (credit, transfer, trustee operations, cash settlements, seeking amounts not credited to accounts, opening, closing and re-registration of accounts); b) transactions related to bank deposit accounts, including savings accounts, settlement and budgetary accounts, transfers, debts, checks and other financial instruments, except for proceeds from sale of goods in case of default of loan repayments, information, consulting and expertise services, acquisition and rent of broker's places at a stock exchange, lease, including services of collection, storage and delivery of cash, securities, documents, fees from trustee operations on the management of the clients‟ property, liquidation of property of bankrupt entities, fees for providing clients with regulatory documents; c) transactions related to currency, money, banknotes circulation that are legal tender (except for collector items), goods from the tariff position 7108 delivered to the National Bank of Moldova; d) transaction related to the issue of shares, stocks, bonds and other securities, including commercial and commission activity on the securities markets, and activity of independent registrars; e) transactions related to derivative financial instruments, forward agreements, options and other financial operations; f) services related to management of investment funds and qualified non-state pension funds organizations. g) insurance and/or re-insurance services, except for intermediary insurance services organizations; 13) postal services, including delivery of pensions, subsidies and indemnities; 14) services related to gambling provided by entrepreneurs engaged in the gambling business (including the use of gaming machines), except for the services the value of which is partially or entirely included in the stake or entrance fee, and other services provided to participants or to the audience; lotteries. 15) burial and incineration of human and animal bodies, and related activities: preparing bodies for burial or cremation, embalming and services provided by funeral homes; rental of funeral rooms; rental or sale of burial places; maintenance of tombs; development and maintenance of cemeteries; transportation of bodies; rituals and

ceremonies provided by religious organizations; organization of funerals and incineration ceremonies, manufacturing and/or delivery of coffins, crowns; 16) accommodation in dormitories; utility services for the general public: rental of dwelling space, technical services for residential housing blocks, water supply, sewage, heating, sanitation, elevators; 17) passenger transportation services throughout the country, as well as ticket selling services for passenger transportation in the country;” 18) electric power imported and supplied through the distribution network, or imported by the distribution networks, except imported electric power transportation services; 19) services related to the confirmation on land ownership rights; 20) books and periodical (except advertising and erotic) publications and polygraph printing of books and periodicals, except those mentioned above; 21) imported excise stamps for identification of goods subject to excise tax; 22) services delivered by agricultural service cooperatives, established in accordance with art. 87 of Law No. 73-XV from April 12, 2001 on business cooperatives, the members of this cooperative, provided that at least 75% of the total value of the goods and services delivered by the cooperative are goods and serviced delivered to its members and goods delivered by its members by the cooperative; 23) tangible assets the unit value of which exceeds 6000 lei and which have a service life of more than one year, which are included in the statutory (social) capital as provided by current legislation. This fiscal facilitation is applied in accordance with the regulations approved by the Government; 24) cars and other motor vehicles (tariff positions 870321, 870322, 870323, 870324 870331, 870332, 870333); 26) departments of science and innovation organizations accredited by the National Council for Accreditation and Certification. Exemption will be granted beginning with the fiscal period in which the organization of science and innovation has been accredited by the National Council for Accreditation and Certification. In case of withdrawal of the accreditation certificate, private organization will be entitled to relief since fiscal period in which to withdraw the accreditation certificate .. 27) departments of science and innovation organizations accredited by the National Council for Accreditation and Certification. Exemption will be granted beginning with the fiscal period in which the organization of science and innovation has been accredited by the National Council for Accreditation and Certification. In case of withdrawal of the accreditation certificate, private organization will be entitled to relief since fiscal period in which to withdraw the accreditation certificate .. 1.3. Registering the subject of taxation, cancelling the registration 1) A subject conducting business activity, except for public authorities, public institutions specified in article 51, public and private medical and sanitary institutions specified in article 511, and business patents holders, shall register as VAT payer, if he/she delivered goods, services, other than those exempt from VAT, the total value

of which exceeded 600,000 lei within 12 consecutive months. The subject of taxation shall officially notify the State Tax Service by filling out the respective form and register not later than the last day of the month when this amount was exceeded. The registration shall take effect on the first day of the month following the month when the this amount was exceeded. 2) A subject conducting business activity is entitled to register as VAT payer if he/she made taxable deliveries of goods, services (except imported goods, services) valued at more than 100000 lei within 12 consecutive months, provided that payment for these deliveries will be made through settlement by transfer to bank accounts of the subject of business activity, accounts opened at financial institutions which have established fiscal relations with the budgetary system of Republic of Moldova. The registration shall take effect on the first day of the month following the month when the ceiling was exceeded, of which the State Tax Service was officially notified due to filling out the respective form. 3) Upon registering a subject of taxation, the State Tax Service is required to issue a certificate of registration approved in due order, which states: a) the name and legal address of the subject of taxation, b) the registration date, c) tax identification number of the subject of taxation. 4) The subject that carry out entrepreneurial activity and of taxation that benefits from imported services the value of which if their value is added to the value of goods, services delivered within 12 consecutive months exceeds 600000 lei shall register as VAT payer as stipulated in paragraph (1). The peculiarities of the registration‟s cancelling are described in art.113 of the Tax Code. 1) A subject of taxation must inform the State Tax Service if he/she ceases to make taxable deliveries. The State Tax Service shall then cancel the subject‟s registration for VAT in due order. 2) The State Tax Service has the right to cancel independently the registration of the VAT payer provided that: a) the total value of taxable deliveries of the subject of taxation does not exceed the ceiling of 100000 lei for 12 consecutive months; b) the subject of taxation did not submit a VAT return for each fiscal period; c) information presented in accordance with art.8 para.(2) lett.b) by the subject of taxation is not accurate. 3) On the date of cancellation of VAT payer registration, a subject is regarded as having made a taxable delivery of inventory of goods and fixed assets for which VAT was credited when purchased and must pay the debt for VAT on that delivery. The taxable value of that delivery shall be its market value. 4) The date of cancelling VAT payer registration is the date of the inspection act basing on which the decision of the director (deputy director) of the fiscal body to cancel registration is issued.

5) In case of suspension of the taxable subject activity according to the legislation in force, the registration as V.A.T. taxpayers is not canceled, and the period of suspension of the activity is not taken into account when assessing the ceiling set in paragraph(2) a). In case of deliveries during the activity suspension period, the taxpayer's V.A.T. obligations and rights are restored in the first day of the month in which deliveries were made. 1.4. VAT rates. Determination of tax liability terms. The Tax code sets the following Vat rates: a) standard rate - 20% of taxable value of imported goods and services and deliveries made on the territory of the Republic of Moldova; b) reduced rates in the amount of: – 8% - for bread and bakery products (190120000, 190540, 190590300, 190590600, 190590900)*, for milk and dairy products (0401 0402, 0403, 0405, 040610200)*, delivered on the territory of Republic of Moldova except food products for children which are exempt from VAT in accordance with art.103 parag.(1) item 2); – 8% - for medicines from the tariff headings 3001–3004 both listed in the State Medicine Classified List and authorized by the Ministry of Health, imported and/or delivered on the territory of Republic of Moldova as well as medicines prepared by pharmacies based on magistral prescriptions using authorized ingredients (medical substances); – 8% - for goods imported and/or delivered on the territory of Republic of Moldova from tariff positions 3005, 300610, 300620000, 300630000, 300640000, 300660, 300670000, 370790, 380840, 382100000, 382200000, 4014, 4015, 481890, 900110900, 900130000, 900140, 900150, 901831, 901832, 901839000; – 8% – from imported beet sugar and/or delivered within the country; – 8% – to the production of plant growing and horticulture in natural form and production of livestock in its natural form, live weight and slaughtered, produced and delivered in the country – 6% - for natural and liquefied gas both imported and delivered on the territory of Republic of Moldova; c) zero rate – for goods and services delivered in accordance with article 104. The following deliveries are subject to zero rate VAT: a) goods, services for export, and all kinds of international passenger and cargo (including shipments) transportation, as well as airport (aerodrome) operator services, selling tickets for international ground servicing of aircrafts including the delivery of fuel and cargo on the board of the aircraft, aeronautic safety services and air navigation services for aircrafts involved in air traffic; b) electric power, thermal energy and hot water for population, regardless of the subject under which management are the population immovable property for public housing purposes;

c) imports and/or deliveries on the territory of Republic of Moldova of goods, services designated for the official use of diplomatic missions in Republic of Moldova, and personal use or consumption by members of diplomatic, administrative and technical personnel of these mission and by the members of their families living with them, on a mutual basis, as well as for the official used of similar mission in Republic of Moldova and personal use or consumption by members of diplomatic, administrative and technical personnel of these mission and by the members of their families living with them. The zero rate VAT is applied as provided by the Government; c1) import and/or delivery within the country of goods and services destined for: - technical assistance projects conducted on the territory of Moldova by international organizations and donor sates in treaties to which it is party; - investment support projects, financed from loans and grants awarded to the Government or with state guarantee, from loans granted by international financial institutions (including the Government share) and from grants awarded to the budget institutions. f) goods, services delivered within the free economic zones outside the customs territory of the Republic of Moldova, delivered from the free economic zones outside the customs territory of the Republic of Moldova, delivered in the free economic zone in the rest of the customs territory of the Republic, as well as those delivered by free economic zones residents of the Republic of Moldova to each other; g) the services of light industry enterprises on the territory of Republic of Moldova under contract processing customs procedure for inward. Type of services that are included into this section, and the administration of these services are determined by the Government and the list of economic agents is approved by the Ministry of Economy; h) Goods supplied duty-free. Given the situation that the subject of taxation performs deliveries that are taxed at zero rate, may occur the situation when Vat on material values, or purchased services are higher than the VAT on supplies, then he has the right of reimbursement of sum that exceeds Vat on material values or purchased services, paid through bank account and/or through the tax refund account settlement amounts, within the Vat standard rate, multiplied by the value of delivery , which is taxed at zero rate. VAT refund shall be as established by the Government, in a period not exceeding 45 days. VAT refund is made to pay off debt traders to the national public budget, except tax liabilities administered by customs, and in absence of debt –at trader's bank account.

Determination of tax liability terms performed from inside are the following: 1) The date of tax liability is the date of delivery. The date of delivery is the date when the goods are released, services are provided, except for cases stipulated by paragraphs (5), (6) and (7). 2) For goods, the date of delivery is the date when the goods are handed (transferred) to the consumer, or, if transportation is involved, is the date when transportation

starts, except exported goods, for which the date of delivery is the date when goods leave the territory of Republic of Moldova. 3) For delivery of immovables, the date of delivery is the date when the consumer becomes the owner of the immovable property on the date of its inclusion in the register of immovable property 4) For services, the date of delivery is the date the service is provided, the date when the fiscal invoice is issued or the date when a full or part payment is made to the subject of taxation, whichever comes first. 5) If a fiscal invoice is issued or payment is received prior to the date of delivery, the date of delivery shall be the date of issuing the fiscal invoice or the date of receipt of payment, whichever comes first. 6) If goods, services are regularly delivered for the duration of a certain period of time stipulated by the contract, the date of delivery shall be the date of issuing the fiscal invoice or the date of receiving each periodic payment, whichever comes first. 7) For delivery of goods and services under a (financial or operational) leasing contract, the date of delivery shall be the date specified in the contract for the payment of leasing installment. If the leasing installment is paid in advance, the date of delivery shall be the date of collecting the advance payment. The determination of tax liability terms for imports is made taking into account: 1) For imported goods used for business activity, the date of tax liability shall be the date the goods are declared at the border customs offices, and the date of payment shall be the date the amount is actually paid by the importer (declarant) or by the third party to the customs body or deposited to the Treasury Single Account, confirmed by an extract from the bank statement. For imported services used for business activity, the date of tax liability and the date of VAT payment shall be the date the service provision, indicated in the document confirming the delivered service; 2) Goods are considered imported if the importer complies with all requirements on import of goods into the territory of the Republic of Moldova stipulated by customs legislation, and if goods become liable to customs duty. If imported goods are exempt from customs duties, the goods shall be considered imported, as if they would have become liable to customs duties, observing all appropriate procedures applicable to imported goods under customs legislation. 1.5. Fiscal period. Determination of tax liability to VAT The VAT taxable period is one calendar month starting on the first day of that month. When registration for VAT payment is cancelled, the last taxable period starts on the first day of the month when the registration was cancelled and ends on the last day of the month when the cancellation of the registration takes effect. 1) Subjects of taxation must report and pay the amount of VAT due to the budget for each tax period, which represents the difference between the amount of VAT paid or

payable by consumers for the goods, services delivered and the amount of VAT paid or payable to the suppliers at the moment of purchasing material values, services (including VAT for imported material values) used for the purpose of conducting entrepreneurial activity during the respective fiscal period, taking into account the eligibility for tax credit under Article 102. 2) If the VAT amount paid or payable to the supplier for the purchase of material goods, services exceeds the amount of VAT received or receivable from consumers for the goods, services delivered, the difference shall be carried forward for the next tax period and shall become part of the VAT payable for material goods, services purchased during that period, except the following cases: a) If the VAT amount for material goods and services purchased by the enterprises producing bread and bakery products and enterprises processing and producing dairy products exceeds the VAT amount for deliveries of bread, bakery products, milk and dairy products, the difference is reimbursed from the budget within the VAT standard rate multiplied with the value of delivery that is taxable at a reduced rate. VAT is refunded in accordance with the instructions of the Government within 45 days. b) If the surplus of VAT,or reduced rate of VAT amount for material goods, services purchased is due to the fact that the subject of taxation has made a delivery taxed at zero-rate, the respective subject of taxation is entitled to a refund of the surplus VAT amount for the material goods, services purchased paid or payable through bank account and/or against paying off amounts for tax refund, in accordance with the provisions of this article, article 103. para.(3) and article 125, within the limit of the VAT standard rate multiplied by the value of the zero-rate deliveries. VAT is refunded as provided by the Government within 45 days. VAT is refunded against debts of business units (or their creditors) to the national public budget, and if there are not debts – on the bank account of the business unit. c) If the VAT amount for material values and/or services purchased by an enterprise involved in leasing activities exceeds the VAT amount for goods or services delivered under financial and/or operational leasing contracts, the difference shall be refunded from the budget within the standard VAT rate multiplied by the value of delivered goods or services. VAT is refunded as provided by the Government within 45 days. 3) Taxable subjects who import services pay V.A.T. on the date of service provision, indicated in the document confirming the service. 4) Legal or physical entities who import goods for business purposes, shall pay VAT prior or at the moment of filing the customs declaration, i. e. before the goods are released into Republic of Moldova. Physical entities importing goods for personal use or consumption, the value of which exceeds the ceiling stipulated by current legislation, shall pay VAT at the moment of customs clearance and only of the value of such goods exceeds the existing ceiling. When paying VAT to the budget, subjects of taxation registered according to art. 112 are allowed to credit the amount of VAT paid or payable to suppliers-VAT payers on purchased goods, services to be used for the purpose of making taxable

deliveries for business activities. Subjects of taxation are allowed to credit the amount of VAT for imported services to be used for the purpose of making taxable deliveries for business activities only when paying VAT to the budget for these services. Subjects of taxation, registered according to articles 112, are allowed to credit the amount of VAT paid or payable to suppliers-VAT payers for expenditures incurred prior to registration and in relation to purchasing fixed assets for agricultural production, construction and rehabilitation of facilities for agricultural production, establishment and maintenance of new plantations, animal breeding and herd maintenance. The amount of VAT paid or payable on goods, services received to be used for the purpose of making supplies which are exempt from VAT is not subject to credit and shall be included into the production costs or expenditures. The amount of VAT paid or payable on goods, services received to be used for the purpose of making both taxable and exempt supplies is subject to credit if related to taxable supplies. The amount of credited VAT is calculated on a monthly basis by applying the pro-rata on the amount of VAT paid or payable for goods, services purchased and used for both taxable and exempt deliveries. The pro-rata is calculated using the following formula: a) the numerator shows the value of taxable deliveries (less VAT), except advance payments received, for which the respective goods, services are used; b) the denominator shows the total value of taxable deliveries (less VAT) and exempt deliveries, except advance payments received, for which the respective goods, services are used. The final pro-rata is calculated as explained above when filling out the VAT return for the last fiscal period of the year and is based on annual delivery indicators. The difference between the VAT amount credited during previous fiscal periods and the VAT amount calculated using the final pro-rata is registered in the tax return for the last fiscal period of the year. The amount of VAT paid or payable on goods, services received to be used for other than business purposes, as well as purchased goods, which in the course of business were stolen or represent excess losses to what is prescribed by legislation, is not subject to credit and shall be registered as expenditures. The amount of VAT paid or payable for goods, services purchased by a subject to taxation for organizing entertainment activities, which are not part of its business, is not subject to credit and shall be reported as expenditures. Subjects of taxation who are engaged in entrepreneurial activity in the area of entertainment and recreation, and who use goods, services purchased for business activities shall be entitled to VAT credit on such supplies. A subject of taxation is entitled to credit the VAT paid or payable on acquired material goods, services if he/she has the following: a) a fiscal invoice for acquired goods, services for which VAT was paid or is payable, or

b) a document issued by the customs authorities certifying that VAT for imported goods was paid c) a document confirming payment of VAT for imported services. The delivery, for which VAT paid or payable on material goods, services purchased is allowed to be credited, must be made to the subject of taxation by the supplier who issued the fiscal invoice (purchased in due order from the authorized body) or must be imported by the subject of taxation. At the delivery of goods, services for export and all types of international passenger and cargo transportation, a VAT refund for material goods and services acquired shall be allowed provided the following: a) the customs authorities confirm the supply of goods for export; b) copies of international transportation documents confirming receipt of exported goods; c) copies of international transportation documents confirming receipt of services delivered – for international goods transportation services; d) waybill, ticket record sheet, control bill, navigation schedule (depending on the type of transportation) – for international passenger transportation services; e) confirmation of receipt of goods from the post office; f) confirmation of foreign recipient – for other services, and for services provided by electronic means – confirmation through digital or written signature upon provision of services and confirmation of receiving payment for respective services (if it occurred) or information on payments received on international payment system cards submitted by the bank, which can be used to identify the foreign recipient. 1.6. VAT refund VAT taxable subjects, benefit from the VAT refund amounts in situations in which the taxable supply performs zero or reduced VAT And when VAT on material values, services purchased are higher than the VAT on supplies. This VAT refund is carried out in accordance INSTRUCTIONS VAT refund amounts approved by Government Decision no. 188 of 17.11.2005. VAT refund is made by the Budget Commission Decision authorities regarding VAT refund at the service or MSTI Commission Decision on VAT refund taxpayers served by the Department of Large Taxpayers Management (DACM below). To administer the refund process taxable subjects, registered as VAT payers, are classified into three basic groups: - Group I. Subjects with a high degree of credibility taxpayers - Group II. Subjects taxpayers with average degree of credibility - Group III. Taxpaying subjects with low degree of credibility; Award criteria to determine the cause taxpayers to Group I - Subjects with a high degree of credibility taxable. Carrying on the road at least three years of any kind of activity to ensure correct determination of tax obligations, payments due and full and timely fulfillment of these and last year received the VAT refund or at least twice and was awarded the

title of best taxpayer of the year set by the Government. All documents prepared by the fiscal control bodies in the country must demonstrate the absence of tax violations. Award criteria to determine the cause taxpayers to Group II - medium taxpaying subjects with credibility. Deployment activity during at least two years, the practice of any kind of activity that the subject of taxation provided full and timely fulfillment of tax liability due, and last year received the VAT refund at least twice. The last act of the documentary, prepared by the control of the country, must demonstrate a responsible attitude towards the obligations of the entity tax. Evasion recorded in the act was committed without intent, their size does not exceed the capital of the Company at the date of the act. Acts of thematic control of the budget VAT refund amounts, related to zero-rate supplies (made previously), must demonstrate that no violation of the Tax Code was accepted. Award criteria to determine the cause taxpayers to Group III - taxpaying subjects with low degree of credibility. Subjects taxpayers, registered as VAT payers who do not meet the Group I and II are assigned to Group III of credibility. Subjects tax until January 1 next year to submit to the fiscal management of the place of service award to a request from the groups credibility. Subjects taxpayers, registered as VAT payers who have not requested to be assigned to one of the groups are considered automatically assign credibility to the Group III of credibility. Subjects of taxation, VAT refund request, addressing the territorial tax inspectorate at the application model service established. VAT refund to administer the IFPS shall establish the Commission on the allocation of Republican groups and examining the credibility of VAT payers disagreements between taxpayers and territorial STI subjects (DACM) on VAT refund (still Republican Committee) be established within the territorial IFS Commission on Territorial VAT refund (continued territorial Commission) and the Commission is established within the IFPS DACM on VAT refund to taxpayers served. VAT reimbursement is made within 45 days from the date of application for refund. 37 days of the deadline given are for the control and return receipt of the decision, the remaining eight days are designed to perform the actual refund. Central Treasury receives payment documents, the refund of VAT, to examine and ensure their execution. Subjects taxpayers, requesting its return on the agreed date of the check must make available to tax officials, documents and / or information: 1) VAT returns in which the sum is repaid. 2) Records of deliveries and purchases, are recorded delivery or procurement operations. 3) Additionally, shows:

a) for delivery of export goods and services made: i. copy of the contract was made based on which the export of goods and / or services; ii. commercial invoice; iii. Customs declaration of export goods after processing including targeted by customs. For other cases of export of services that are accompanied with delivery of material is present and documents that confirm that the property values from the customs territory of Moldova. iv. International shipping documents (copy) confirming receipt of goods from customs stamps addressed this (at least the neighboring states of Moldova) proving the movement of goods outside the customs territory of the country, no matter what the Incoterms delivery. For goods shipped via air transport aviation Forwarding shows the bill, confirmed by the Customs. When shipping goods through the mail is presented documents confirming the postal transportation according to the Law nr.463-XIII from 18.05.1995. v. Customs Service confirm the accuracy of the operations of the export customs declaration, made the subject of taxation. Additionally, for the export of services shows originally written confirmation from the recipient of services exported (in case of necessity a translation authenticated by a notary) and documents confirming payment of service pay. b) Services provided through electronic means; i. digital signature confirmation and confirmation of receipt of payment for those services (if it occurred) or information on the funds collected through the international payment card systems, presented by the bank, which will be possible to identify the foreign recipient. c) for electricity, heat and gas export i. Foreign consignee on delivery receipt confirmation ii. Customs declarations, documents showing the transportation of electricity, heat, hot water and gas in the address of the importer iii. Confirmation of the accuracy of the Customs Service export operations carried out by the subject of taxation. d) for international passenger transport activities carried out by: i. auto transport regularly - the roadmap, the summary records of tickets for single carrier - the roadmap, dockets control; ii. rail transport - ticket record sheet; iii. aviation transport - in charge of navigation e) to make other transportation services and international shipping of goods made with: i. Auto Transport - contract for transporting or shipping service, payment documents confirming the payment of the services rendered, CMR [international motor transportation bill] (sender shows CMR copy) to register on arrival of goods at destination, and this stamp bodies customs (at least the neighboring states of Moldova)

rail - rail transport invoice copy customs stamps (at least the neighboring states of Moldova), acts of works (services) performed for reporting period. For shipping services should present the documents verification with CFM [invoice international freight by rail] (form 4A) and other shippers who participated in the service iii. air transport - aviation Forwarding bill (Air Waybill) with the signature on arrival of goods in the destination country iv. shipping - the bill through registration and stamps attesting international transmission services; f) aerodrome operator services (airport), trading in international traffic tickets travel by air, ground servicing of aircraft, aviation security and air navigation of aircraft in international traffic. i. Documents confirming the listed services and their value. Determining the amount of VAT refund to be made as follows: a) last VAT amount in the account during each fiscal period form VAT invoices related to deductions allowed (on account) b) determine the VAT amounts paid directly through accounts in the account settlement and past fiscal period in which delivery took place at a zero rate of VAT taxable, and passed to account for VAT in the previous fiscal period, taking into account until payment made after submitting the VAT period in which delivery is made taxable with VAT at zero rate, but not later than the date established by art. 115 of the Tax Code. The amount of VAT paid by the settlement of accounts and the amounts transferred are included in creditors to pay off debts to the state budget, budgets of local governments, state social insurance budget and account settlement of customs payments of the amounts given above VAT refunds . c) determine the amount of VAT on the value of goods (services) delivered to zero by applying the standard VAT rate to the value of this delivery. The aspect of determining the taxable value of service at the VAT-bond shipment will be determined only by the amount of shipping fee for the service rendered. d) will be accepted for refund only separately for each fiscal period the amount of VAT determined as the difference between the amount of VAT passed to account, including previous fiscal period and the amount of VAT calculated for deliveries made in the amount determined in absolute b) but not decвt large amount determined at c) value that is VAT on goods (services) delivered to zero Determination of amounts of VAT refund for deliveries made by producers of bread and bakery products and companies that processed milk and dairy produce. Subjects taxpayers, requesting its return on the agreed date of the check must make available to tax officials, documents and / or information: a) VAT returns in which the sum is repaid.

ii.

b) Records of deliveries and purchases, where are recorded delivery or procurement operations. c) Documents proving delivery. Determining the amount of VAT refund to be made as follows: a) to determine the amount of VAT refund by applying VAT rate of 20% to delivering you the VAT rate should be reduced by 8% b) will accept for the amount of VAT refund is determined as the difference between the amount of VAT passed to account including the previous period and the amount of VAT calculated for deliveries made but not greater than the amount determined in paragraph a) Each subject of taxation, as specified in Article 94 a) and / or c) is required to submit the VAT return for each tax period. The declaration shall be made on an official form to be submitted to the State Tax Service no later than the last day of the month following the end of the fiscal period. Each item in the budget to pay the taxable amount of VAT to be paid for each fiscal period, but not later than the date for submission of the declaration period except payment of VAT on imported services budget, which is payable when payment for the imported service.

2.1. Value added Tax calculations Fiscal invoice is a standard form of primary document of strict evidence presented by the seller to the buyer to make taxable supplies. (see Annex 4.) Taxable subject is making a taxable supply must provide a tax invoice to the buyer. Tax bills are numbered in sequence and keep the provider in the same order. Each subject of taxation is required to keep records of the entire volume of goods, services delivered and material values, services purchased. Invoices on the values of materials, purchased services shall be numbered in sequence and recorded in the same order in the Register of purchases. Copies of invoices issued by the seller are kept in sequence and recorded in the Register of sales. VAT Amount kept in Register of sales is VAT collected, and VAT amount kept in Register of purchases is deductible VAT. Tax liability for VAT (VAT to be paid from the budget) is determined as follows: VAT to pay = VATcollected – VATdeductible VAT tax period is one calendar month. Subjects taxpayers are required to calculate and pay VAT to the budget for each fiscal period. If the amount of VAT paid or to be paid to suppliers for the purchase of material goods, or services exceeds the VAT received or to be received from consumers for goods, services delivered during that period, (VATcollected > VATdeductible) then the difference is going to account for the next fiscal period. If the amount of VAT on material values and services purchased by companies producing bread and bakery products and companies that process milk and milk products exceeds the amount of VAT on supplies of bread and bakery products, milk and milk products, the difference shall be reimbursed from the budget within the standard VAT rate multiplied by the value of the delivery to be taxed at the reduced rate. VAT is reimbursed in accordance with the instructions of the Main State Tax Inspectorate under the Ministry of Finance No.10 of 23.7.2001, within a period not exceeding 45 days. If the amount of VAT on services purchased is exceeding because the subject made a delivery to be taxed at zero rate, he is entitled to reimbursement of VAT that has been exceeded the material values, services purchased through paid settlement account, within the standard VAT rate multiplied by the value of the delivery, which is taxed at zero rate. VAT is reimbursed in accordance with the instructions of the Main State Tax Inspectorate under the Ministry of Finance, within a period not exceeding 45 days. Natural and legal persons importing goods for entrepreneurial activity have to pay VAT when submitting the customs declaration, until the introduction of goods in Moldova. Individuals who import goods for personal use or consumption, where the value exceeds the limit set by law, pay vat when the luggage and customs control, only the value that exceeds the limit.

For importer the value of goods, on which VAT is calculated is the cost of goods at the time of entry in Moldova, including all import-related taxes, customs duties, taxes, insurance, freight (commercial document accompanying the shipment or the goods transported by rail and stating the goods, the shipper and consignee, the destination station and the respective fees), transportation costs, royalties and other payments to be paid by the importer. Case study: 1. In march 2011, the economic agent transported from the excise premises 5500 bottles of sparkle wine 0,75 litres volume each; price of a bottle is 25 lei (price does not include excise and VAT). Excise rate= 10% from the delivery value but not less then 2,82 lei/litre. In the same month the economic agent has purchased raw materials in the amount of 15000 lei (price include VAT). Please calculate excise and VAT to be transferred to the budget and indicate terms of payment. 1. Excise T. calculation: first method =
( )

second method = 2,82 lei/litre * 0,75 litre * 5500 bottle = 11632,5 lei The highest value of the excise is taken into calculation = 13750 2. VAT collected (recieved) = 3. VAT deductible (paid) = 4. VAT to be paid to the budget = VAT collected – VAT deductible = 30250 – 2500 = 27750 lei Answer: The economic agent is obliged to pay the amount of 27750 lei of VAT until 30 of April, and transportation excise amount of 13750 lei. 2. Ltd “Catar” in January 2011 transported from the excise premises the following goods: a) 7 video recorders and reproducers with the unit price of 5000 lei without VAT and excise tax, excise rate = 11,80 euro/unit b) 10 video cameras with the unit price of 8000 lei/unit without excise and Vat, excise rate = 34 euro/unit Exchange rate is: 1Euro=17 lei Calculate tax obligation regarding Excise and Vat. 1. Video rec./reprod. Excise = 11,8 euro/unit * 17 lei * 7 units = 1404,2 lei
( )

VAT= (Price of goods + excise) * Vat rate =

(

)

2. Video cameras Excise tax = 34 euro/unit * 17lei * 10units = 5780 lei Vat =
( )

VAT collected (received) = 7280,2 +17156 = 24436, lei Excise = 1404,2 + 5780 = 7184,2 lei.

Import VAT = (customs cost + customs duty + + fee for making customs procedures + excise) * VAT rate Importers are required to present documents confirming the value of imported goods, such as tax invoices, contracts or other documents as determined by law. Each subject of taxation is required to submit VAT return for each tax period. The declaration shall be made on an official form to be submitted to the State Tax Department no later than the last day of the month following the end of the fiscal period. Each subject of taxation is required to pay the budget amount of VAT to be paid for each fiscal period, but not later than the date for submission of tax return for that period. Exceptions are paying VAT to the budget on imported services , which is payable at time of payment for the imported service. Case study: 1. The economic agent has imported 10000 bottles of beer of 0,5 litres each. Price of a bottle is 10lei. Excise rate = 1,85 lei/litre, custom tariff (duty) = 0,25 euro/litre, the fee for carrying out custom procedures = 0,4% of the customs value of goods. Exchange rate 1 euro = 17lei Calculate tax obligation of the agent and indicate terms of payment. Calculate tax to be paid on customs Custom cost = 10000*10= 100000 lei Custom duty = 0,25 euro/litre * 17lei * 0,5 litres * 10000 bottles = 21250 lei Charging for custom procedures = 100000* 0,4% / 100% = 400lei Excise rate = 1,85 lei/litres * 0,5 litre * 10000 bottles = 9250 lei ( ) VAT for import = Answer: all taxes are paid on customs territory.

2.2. Comparative analysis of VAT with other taxes based on benchmarking indicators Until recently, there has been only limited effort to develop comprehensive tools for assessing tax systems, despite the fact that national governments and international organizations or foreign assistance agencies, such as the World Bank, the International Monetary Fund of the U.S. Agency for International Development, have been assessing tax systems in developing and emerging market countries for decades. Benchmarking can be used not only to compare a country‟s tax system with a regional or international set of norms or comparators, but it can also be used to compare the condition and performance of the tax system over a period of time, either discrete snapshots in time or evolution of the benchmark or indicators over a number of years. The methodology can be generalized to all national-level tax systems throughout the world. This benchmarking methodology has been developing over a few years through application in a number of countries. One indicator that was subsequently developed is called the VAT-Gross Compliance Ratio, which compares actual VAT collections to potential VAT collections if there were no evasion, tardiness in payment, or exemptions and exonerations. Other indicators were developed with time. Some had been developed elsewhere, such as indicators of tax evasion and efficiency in collections. The tax benchmarking methodology views tax system operations and performance from two related perspectives. From the first perspective, they compare a variety of performance, structure, process and operations and organization measures in Moldova with those in many other countries of the world. These comparisons help to establish the degree of normalcy of the Moldovan tax system: where it excels, falls short, or meets normal operating expectations. To make the analysis local in scope, they also compare Moldovan data to the experiences in other Former Soviet Union (FSU) countries and Central and Eastern European (CEE) countries. The methodology also compares tax administration operations and organization to what are generally considered “best practice,” although in some cases, common or good practice might be a more appropriate term. Overall levels of taxation in Moldova are not particularly high, nor low, when looked at from a very macroeconomic perspective. For instance, total tax revenues, including social contributions, come to 34% of GDP, which is not particularly high for FSU or Central and South East European (CEE/SEE) countries. Value-added tax rate (VATR) This is a tax structure indicator. Most goods and services are taxed under the value added tax system at the general rate. Most countries have a variety of reduced rates for certain basic goods, such as basic foodstuffs. In addition, all countries have a zero rate on exported goods.

The VAT rate of 20% is a bit above that in the rest of the world, but this likely has little impact on Moldova‟s international competitiveness, as it does not affect relative prices of the country‟s factors of production, nor does it add directly to the costs of doing business. The 20% VAT rate is essentially the same as the average for CEE/SEE and FSU countries. Value-added tax Productivity (VATPROD) This is a tax revenue performance indicator. It is a measure of how well the VAT produces revenue for the government, given the VAT rate. It is calculated by dividing the VAT collections by GDP and then dividing this by the VAT rate. For instance, if VAT revenues come to 10% of GDP and the VAT rate is 20%, then the VATPROD value will be 0.50

Regardless of the measure used (gross compliance or revenue efficiency), Moldova‟s STI does a good job of collecting VAT revenues. Indeed, VAT

productivity, at 0.70, and the VAT gross compliance ratio, at 84%, are among the highest in the world in those categories. The reasons for this high productivity are discussed in later sections of this report, but an important tool that the STI uses is the reporting of fiscal invoice information in the VAT declaration process. Total tax revenues in Moldova come to about 34% of GDP, which has grown in recent years, from about 30% in 2005. Revenue growth, after inflation, has been robust in the last several years, with 2007 registering the slowest annual growth at only an estimated 3% in real terms. The single most important reason for this increase in government tax revenues is the growth in the importance of the VAT. VAT has grown from 10 % of GDP in 2004 to 14% in 2007, when VAT receipts came to almost 39% of total government revenues.(also see Annex 1) VAT Collections (VATY) This is a reference indicator. This is the level of VAT collections as a percentage of GDP.

At the same time, income taxes have remained as stable contributors to the government coffers, while the importance of excises has declined slightly. Foreign trade taxes have also remained steady in their contribution to overall government revenues. On an internationally comparative basis, we see that Moldova collects relatively low shares of GDP in personal and corporate income taxes, while it collects a relatively high share of GDP in VAT. These shares are presented in a comparative framework in Annex A. To make the analysis more local in scope, is also compared Moldovan data for each of the variables to the experiences, first, in other Former Soviet Union (FSU) countries (see Annex 2) and, second, in Central and Eastern European countries (see Annex 3).

Compared to other FSU countries, too, Moldova‟s VAT produces a larger than average share of GDP in public revenues, while income taxes produce below-average revenues as a share of GDP. In 2004, STI-collected VAT revenues were equal to about 48% of those VAT revenues collected by Customs. Since 2004, the STI‟s VAT collections, net of refunds, declined to around 40% of Customs‟ VAT collections. The trends in domestic (STI) VAT collections and collections at Customs on imports from 2005 to 2007 are presented in Table 2.1.1. Net VAT revenues from domestic transactions increased by 64% between 2005 and 2007, while VAT on imports increased by 57%. Tabel 2.1.1 VAT on domestic and international transactions

The following table relates VAT collections on imports to total imports during the period 2005 to 2006. (see Table 2.1.2)It also reports VAT refunds with respect to exports. It is interesting to note that over this period, both VAT revenues as a percent of imports and VAT refunds as a percent of exports increased somewhat. Tabel 2.1.2

The share of VAT collections that come from domestic transactions, net of refunds, is relatively low in Moldova compared to other lower income countries. This is understandable. Imports in Moldova come to over 90% of GDP, a proportion that is only matched by a very few countries around the world. Despite this large trade sector, domestically collected VAT revenues in the past three years have grown more rapidly than import-based VAT, and fully account for the increase in the VAT Gross Compliance Ratio (from about 69% to 84%) over this period.

VAT Gross Compliance Ratio (VATGCR) This is a tax revenue performance indicator. It is a measure of how well the VAT produces revenue for the government, but is a bit more refined than the VATPROD indicator, since it takes into account the fact that VAT is mostly only applied to final home consumption by households and individuals. It is calculated by dividing VAT revenues by total private consumption in the economy and then dividing this by the VAT rate. For instance, if VAT revenues come to 5% of private consumption and the VAT general rate is 20%, then the VATGCR would come to 25. In other words, the VAT Gross Compliance Ratio is actual VAT collections divided by potential VAT collections, expressed as a percentage. The VAT gross compliance ratio is similar to the VAT c-efficiency, or the collection efficiency, except that the VAT c-efficiency relates VAT collections to aggregate consumption expenditures rather than just private consumption. Since almost all government consumption around the world is the payment of government wages and salaries, the VATGCR might be seen as a somewhat “tighter” indicator of performance.

Although tax revenues have been growing as a share of GDP over the recent past, the absolute after-inflation growth rate in 2007 was the lowest in several years. Indeed, revenue growth in 2007 seems to have come about almost entirely due to continuing economic growth. At the same time, the VAT has been the most dynamic revenue source for the Government, though VAT revenue seems to have hit its peak and it is very unlikely to grow at similar rates in the future. 2.3. The evolution by sectors of Value added tax in Republic of Moldova The International Standard Industrial Classification of All Economic Activities is a United Nations system for classifying economic data. The United Nations Statistics Division describes it in the following terms:

wide use has been made of ISIC, both nationally and internationally, in classifying data according to kind of economic activity in the fields of production, employment, gross domestic product and other statistical areas. ISIC is a basic tool for studying economic phenomena, fostering international comparability of data, providing guidance for the development of national classifications and for promoting the development of sound national statistical systems. ISIC classified Value-added Tax data into three kinds of economic activity: industry, agricultural and services. Here is presented the evolution of VAT rate from Republic of Moldova as a percentage of GDP since 1989 to 2009. VAT on services (% of GDP) Services include value added in wholesale and retail trade (including hotels and restaurants), transport, and government, financial, professional, and personal services such as education, health care, and real estate services. Also included are imputed bank service charges, import duties, and any statistical discrepancies noted by national compilers as well as discrepancies arising from rescaling. Value added is the net output of a sector after adding up all outputs and subtracting intermediate inputs. It is calculated without making deductions for depreciation of fabricated assets or depletion and degradation of natural resources. The industrial origin of value added is determined by the International Standard Industrial Classification (ISIC).

Evolution of VAT on services
90 80 70 60 50 40 30 20 10 0

Industry, value added (% of GDP) It comprises value added in mining, manufacturing (also reported as a separate subgroup), construction, electricity, water, and gas. Value added is the net output of a sector after adding up all outputs and subtracting intermediate inputs. It is calculated

without making deductions for depreciation of fabricated assets or depletion and degradation of natural resources.

Evolution of VAT on industry (% of GDP)
50 45 40 35 30 25 20 15 10 5 0

Agriculture, value added (% of GDP) Agriculture includes forestry, hunting, and fishing, as well as cultivation of crops and livestock production.

Evolution of VAT on agriculture
60 50 40 30 20 10 0

Conclusion Growing numbers of policy analysts and politicians are saying that it may finally be time to consider a value-added tax as part of our federal revenue system. VAT represents an important instrument against tax evasion and is superior to a business tax or a sales tax from the point of view of revenue security for three reasons. In the first place, under VAT it is only buyers at the final stage who have an interest in undervaluing their purchases, since the deduction system ensures that buyers at earlier stages will be refunded the taxes on their purchases. Secondly, under VAT, if payment of tax is successfully avoided at one stage nothing will be lost if it is picked up at a later stage; and even if it is not picked up subsequently, the government will at least have collected the VAT paid at stages previous to that at which the tax was avoided; while if evasion takes place at the final stage the state will lose only the tax on the value added at that point. VAT may be selectively applied to specific goods or business entities. We have already addressed essential goods and small business. In addition the VAT does not burden capital goods because the consumption-type VAT provides a full credit for the tax included in purchases of capital goods. It must be stressed once again that if properly implemented VAT can ultimately lead to a reduction in overall rates of tax. Revenues will not be sacrificed but would in fact be enhanced as a consequence of the broadened tax base. This does not seem to be a bad idea at all. The evidence presented in this paper is consistent with the structural economy approach to taxation. While this paper does not negate the possibility of efficiency gains associated with greater reliance on a VAT, it points out that these gains are not automatic, and may depend on structural factors. This analysis focused on the efficiency of a VAT in Republic of Moldova.

BIBLIOGRAPHY: 1. Joshua Aizenman, Yothin Jinjarak, “The collection efficiency of the value added tax: theory and international evidence”, August 2005 2. Vasile Goian, Mark Gallagher, Steve Rozner, Viorel Rusu. “Collecting and Paying Taxes in Moldova A Tax Benchmarking Exercise” March 2008. Produced for review by United States Agency for International Developemenet. Prepared by DAI. 3. “Foreign Investment Guide Value Added Tax (VAT), Moldova”, Updated in September 2007. 4. “Guide to doing Business and Investing in Moldova” , Business guide Moldova, Edition 2009 5. “Moldova - Value-Added Taxation Indicators” 6. “Taxation Statistics – Value Added Tax” 7. “Buletin informativ privind Sistemul Fiscal al Republicii Moldova”, Ministerul Finanțelor al Republicii Moldova, 2006 8. „TAXATION IN MOLDOVA Information for companies operating internationally”, 2008 9. Hîncu R., Chicu N., „Metode și tehnici fiscale: Curs universitar ”, Chisinau 2005, editura ASEM Regulations: 1. Tax Code of the Republic of Moldova, Chapter 3.Value Added Tax 2. LAW NO. 1417-XIII of December 17, 1997 of the Republic of Moldova, on Application of Title III of Tax Code, (Official Monitor, February 8, 2007, special edition) 3. Codul vamal al Republicii Moldova, nr. 1149-XIV din 20.07.2000, (Monitorul Oficial al R.Moldova ediţie specială din 01.01.2007, pag.103;Monitorul Oficial al R.Moldova nr.160-162/1201 din 23.12.2000) 4. REGULAMENT privind restituirea taxei pe valoarea adăugată, Aprobat prin Hotărîrea Guvernului nr.287 din 11 martie 2008 5. REGULAMENT cu privire la modul de aplicare a cotei zero a TVA la livrările stabilite de articolul 104 lit.c) din Codul fiscal, Aprobat prin Hotărîrea Guvernului nr.985 din 3 septembrie 2004 Web Pages: 1. www.customs.gov.md 2. www.minfin.md 3. www.fiscalreform.net 4. www.nationmaster.com 5. http://data.worldbank.org/indicator 6. www.fisc.md

Annex 1. The revenue structure and their trends over four years.

Annex 2. FSU comparative table

Annex 3. Central and Eastern Europe comparative table