Victoria Belous
Logos Press spoke with Finance Minister Viktoria Belous about how the rules for businesses and citizens will change and whether it will be possible to strike a balance between supporting the economy and fiscal interests.
Tax Reform 2027: Key Changes
Madam Minister, what is fundamentally new about the approach to developing the latest version of the tax reform? What changes do you consider most significant, and what do they offer the state and businesses?
First and foremost, we are striving to reduce the tax burden on labor. The most important social measure is the increase in the personal exemption from 29,700 to 40,000 lei. For the budget, this means about 800 million lei in lost revenue. At the same time, everyone who takes full advantage of the personal exemption will feel the benefit—about 1,200 lei.
This also affects local budgets, but we are committed to compensating them for these losses.
Second, we are working to support economic development. To this end, we are expanding the application of the zero tax rate on undistributed profits. The regime was in effect from 2023 to 2026, but companies with sales exceeding 100 million lei were not eligible to use it. Now, for the first time, we are raising the threshold to 200 million lei. And this measure also comes at a cost to the budget: approximately 400 million lei in lost revenue.
We have made every effort not to cut benefits for employees and to maintain the current system, including those related to wages. Contributions for foreign nationals are proposed solely to avoid indirectly incentivizing the hiring of foreign nationals over citizens of the Republic of Moldova.
One thing I would call new compared to the fiscal policies of previous years is the tax burden on so-called “vices.” We have introduced an excise tax on gambling, an excise tax on beverages with high sugar content, and significantly increased the excise tax on cigarettes—by 20%. Thanks to these measures, we expect to generate several billion lei in additional revenue.
Which ideas from the first tax reform bill did you reject? And what will happen to the Ministry of Finance’s proposals that were not included in the bill?
The new draft differs significantly from the previous one. Many aspects have been changed: the method of withholding and calculating social contributions from wages, the distribution of the burden between employer and employee, the concept of a zero rate, the approach to eliminating tax exemptions, and the application of VAT. In essence, this is already a different draft.
As for the Ministry of Finance’s “shelved” ideas, our goal is to bring the Republic of Moldova’s legislation into line with European standards and practices. However, any abolition of existing tax breaks or regimes must be done in a balanced manner: the changes must be acceptable to the business community, economically sound, and practicable, while simultaneously stimulating economic development and ensuring budget revenue.
Investments, Zero Tax Rate, and Retail
What tax incentives for investment—besides the zero tax rate on undistributed profits—is the Ministry of Finance proposing this year and planning for the coming years?
Investor interest depends not only on taxes. Infrastructure, market quality, and reforms—including judicial reform—are important to them. When attracting investment, we cannot rely on just one segment. At least in terms of tax and customs administration, the Ministry of Finance will continue to emphasize compliance. We did not come with the obsessive idea of raising fines or revising sanctions—that is not our priority. We will strive to ensure that both the Tax Service and the Customs Service become more business-friendly. We will review processes and provide greater clarity: clarity and predictability in policy are an advantage.
Entrepreneurship support programs also have a significant impact. We hope to raise more funds for the budget and allocate them to targeted support measures for specific sectors.
The zero tax rate on undistributed profits is being extended until 2029, and the threshold for companies is being raised to 200 million lei. Why only until 2029? How can an investor plan a project for 10–15 years if one of the key incentives is guaranteed for only a couple of years?
It’s important to understand: income tax hasn’t been abolished; it’s simply deferred until profits are distributed. When a company pays dividends, tax liabilities arise regardless of which tax regime it had been operating under previously.
This is a measure to encourage capitalization and reinvestment, and the business community appreciates it. But under current conditions, the timeframe within which we can guarantee such predictability is about three years.
One question from the retail sector: Why are wholesale and retail trade excluded from the zero-rate income tax regime?
— This rule was in place last year as well. It’s important to understand that a zero rate—or a “tax holiday”—for undistributed profits costs the budget billions of lei. When we talk about stimulating the economy, we have to choose which sectors truly need this boost.
There are industries that are growing on their own. Just look at what’s happening around us: trade is growing even without this exemption. That’s why we decided to focus more on supporting manufacturers and the processing sector. We believe that the commercial sector (as well as part of the service sector) already has sufficient capacity to grow without an income tax exemption.
The Ministry of Finance proposes eliminating the option to retain incentive capital for employees. Why, given that this is a powerful tool for motivating staff?
Yes. We want to eliminate this measure because we did not have a 100 percent guarantee that the mechanism for administering it would actually stimulate wage growth rather than be used to pay what is essentially base pay. This tool is primarily intended for large companies, and we believe it could largely be used for tax optimization. The problem is that it can be used to replace part of regular wages and, among other things, avoid paying social security contributions.
Farmers, VAT, and Diesel Fuel
Among farmers, the revision of the preferential VAT rate from 8% to 12% is a source of controversy. Why does the government consider it justified to increase the tax burden on them right now?
It is important here to look not only at the producer of raw materials, but at the entire supply chain. When raw materials are taxed at a reduced rate, while the final product is taxed at the standard rate of 20%, the difference in rates and the liquidity problem are effectively shifted to the processing sector.
From the perspective of administration and distributing the burden across the stages of the economic cycle, a single rate would be simpler. Take grain, for example: in its raw form, it is taxed at a preferential rate, while flour is taxed at the standard rate. The same thing happens with a number of other goods. As a result, the burden shifts to the next stage.
We believe that raising the reduced rate by 4 percentage points should not pose a critical risk to the industry, since it has accumulated VAT eligible for offset. This VAT can be utilized; moreover, we are indirectly encouraging the second stage—the processing of raw materials within the country.
It is proposed to increase the excise tax on diesel fuel by 20% per year to bring it closer to the EU’s minimum rates more quickly. Why should Moldova move toward European fuel tax levels faster than toward European levels of income and productivity?
We are trying to make this increase as balanced as possible. But it’s important to understand that excise taxes on petroleum products are one of the sources of budget revenue, a significant portion of which goes toward infrastructure. No one in Moldova likes the condition of our roads, but everyone likes the condition of roads in Europe. And if we like the result, we must understand how it is financed.
We acknowledge that part of the revenue also goes to other sectors. But the motivation, aside from the EU directive, is that we must increase budget revenues in order to invest in infrastructure. We’re trying not to raise the income tax or the VAT rate; no one wants higher contributions—and yet everyone wants budget revenue to grow.
Excise Taxes, Tobacco, and Nicotine Products
A package of excise tax changes is expected to generate more than 2 billion lei in additional revenue for the budget. At the same time, authorities hope that raising excise taxes will reduce consumption of alcohol, cigarettes, and sugary drinks, as well as curb the growth of gambling. If this policy works and consumption declines, how does the Ministry of Finance plan to achieve its projected revenue?
We are trying to curb growth in sectors associated with health and social risks and, indirectly, reduce consumption. We understand that no matter what the tax rate on gambling is, it won’t disappear, since people are motivated by other factors as well. High taxes on cigarettes have not stopped smoking in any country. However, in our view, the tax factor motivates some people to reduce their consumption.
In imposing the so-called “vice tax,” the Ministry of Finance assumes that there will be no sharp drop in consumption. But, at the very least, we expect that consumption growth will not be as significant as in previous years.
What is the Ministry of Finance’s strategy regarding excise taxes on tobacco products in the medium and long term? How do you intend to ensure predictability for businesses?
Predictability is ensured by the excise tax growth schedule laid out in the fiscal policy for the next three years. This is standard European practice. We set the growth rate and stick to it. We are currently publishing the rates for 2026, 2027, and 2028, which will not change thereafter.
So, the planning horizon extends through January 1, 2029?
Yes, that’s correct.
Banks and the Overall Tax Burden
In the first half of the year, the banking sector posted a net profit of 2.36 billion lei—15% more than a year earlier. At the same time, there is a proposal to raise the financial sector’s income tax from 12% to 18%. Can this be considered a tax on banks’ excess profits? If so, why doesn’t the government call it that?
No, this is not a new tax. It refers to a higher tax rate for 2027, established based on an analysis of the industry’s situation. The banking sector has demonstrated stable profitability year after year. According to our calculations, the rate increase will not affect the banks’ operations, as they currently retain sufficient capacity to issue loans.
Won’t the additional 6 percentage points limit banks’ ability to lend?
This is a significant change, but it will not lead to a reduction in lending, since banks are not utilizing their full potential for extending loans.
Can you state unequivocally whether the overall tax burden on legitimate businesses will increase, decrease, or remain roughly at current levels after the reform?
It’s impossible to give a general assessment here. For businesses that sell excise goods, it will increase—that’s obvious. For everyone else, with the exception of those for whom the VAT rate is rising from 8% to 12%, there won’t be any significant changes.
Of course, the situation for a specific business will depend on individual factors—for example, whether it uses diesel fuel. But overall, the rates for social security contributions, income tax, and VAT, as well as health insurance costs, remain at their current levels. In addition, as I mentioned earlier, a number of benefits are provided for employees, and these will not change under the current tax policy.
The Bureaucracy and the Risks of Austerity
Another question—not about tax policy. Businesses often ask: if the government bureaucracy is growing, where do you plan to cut costs? Why is it getting bigger in the first place?
I don’t think it’s accurate to compare government agencies today with what they looked like ten years ago. New processes and functions have emerged during that time. The Prime Minister has set us a clear task: to review procedures and improve operational efficiency. But at the same time, as we transpose European legislation, the volume of work is objectively increasing.
A separate issue is the level of salaries in the public sector. There are institutions with special status and a high degree of independence—the National Bank, ANRE, the Competition Council, and CNPF. Their independence and institutional stability have been strengthened, in part based on recommendations from international partners. Such institutions must have sufficient resources and qualified specialists to effectively protect the interests of citizens.
For example, the CNPF’s decisions over the past year in the area of financial services consumer protection have resulted in companies being required to reimburse individuals more than 200 million lei. In my view, this shows that investing in qualified professionals can yield tangible results for society.
At the same time, salaries for most public sector employees remain low. If a law enforcement officer earns around 11,000–12,000 lei, it is difficult to say that public service is particularly attractive. We see this at job fairs as well: young people are practically uninterested in such opportunities.
Therefore, the issue of the size of the civil service and salary levels should be discussed not in political terms, but based on the functions of the state, the quality of specialists, and the results society receives in return for these expenditures.
What specifically needs to happen by the end of 2028 for you, as Minister of Finance, to be able to say that the tax reform has worked? Please name some measurable indicators.
Of course, one of the key indicators is GDP growth. The second is a reduction in the shadow economy. The ease of doing business is also important: for example, how much time an entrepreneur spends preparing financial statements and complying with tax requirements.
Two other indicators are the amount of revenue collected by the budget and the level of voluntary compliance with tax obligations. We want to make progress in all these areas: make doing business easier, reduce the shadow economy, and at the same time increase the level of tax compliance.
