Taxation in Moldova

“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 of enterprises, the net wages earned by hired employees, the budget of the state. As a result, the state collects from 29% (in the USA) up to 55% (in Sweden) of the GDP. Such a large divergence among countries depends on the number and volume of state functions. For example, in the USA the state does not finance health care and education, while Sweden has a wide-ranging social policy.

Usually, 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. Taxation can be applied up to a limit. This ceiling is defined as a maximum taxation level, where a further increase in the taxation rate would lead to a drastic aggravation of economic and social contradictions. Such effects can take the form of open political conflicts caused by fiscal reform, insubordination to the fiscal authorities, tax evasion, capital outflows from the national economy across the border, or the relocation of the population to other regions for tax reasons. However, in extraordinary conditions the taxation ceiling can be raised significantly.

The role of taxation consists of the following:

• Due to the taxation instrument, 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 influence of various technological progress stimulation methods through the taxation system is variable and undefined. Fast-track depreciation reduces the taxation basis on the one hand but leads to technological progress on the other hand; deductions from the costs of scientific research and experimental construction works promote the development of progressive, scientific fields.