Igor Krapivka
Igor Crapivca, CEO of Orvento Metal, went further. He announced the development of an “innovative mechanism of social tax optimization”, which, according to him, will allow bringing out of the shadow and legalizing the wage fund in the Republic of Moldova. Crapivca said that the new mechanism implies a consistent reduction of social tax rates by more than one and a half or two times.
“The best strategy for all of us, including the Finance Ministry, is to start with the optimization of the wage fund,” the entrepreneur said. And he suggested starting with a trial implementation of the mechanism in several industries already this quarter.
The Ministry of Finance’s reaction
According to Andrian Gavrilita, the high tax burden on salaries affects the competitiveness of the economy and the attractiveness of labor resources. However, he adheres to a softer position and suggests: first, not to hurry, and second, to take a “universal” path.
Gavrilita said that Crapivca’s proposals can be considered, but it would be more effective to reduce taxes step by step, using the existing base for accruals and deductions.
“I can’t even promise that from January 1 (next year) we will reduce the burden. But there will be simplifications. In the medium term, I want the payroll burden (I’m looking from top to bottom, from an employer’s perspective) to be around 35%. We need to start building a vision of how we can reduce that burden. Maybe by 5 percentage points at first, if we can find a way to offset it on the other side. And at the same time to make tax collection more transparent”, – said the Minister at a meeting with entrepreneurs in the Chamber of Commerce and Industry.
At the same time, Gavrilice emphasized the need to analyze the differences by sectors, such as construction and agriculture, for example.
“Hawks” refer to the fact that in the EU, the labor tax rate is higher than in our country, so the existing base should not embarrass us. But the Minister argues that our economy is in a special situation. With a weak and vulnerable economy, increasing and even maintaining a high burden on wages means actually “shooting ourselves in the foot”.
“We are used to reports – ‘look, say, the whole of Europe is paying more.’ OK, but maybe the world has come to this in some other way. We are in a situation where our economy is weak, competition between sectors and market players is uneven. And we are moving towards a service-based economy where labor is becoming more and more important. And the more we burden labor with taxes, the more we hit our own competitiveness. Therefore, I believe that we should tax less on wages and more on the results of successful economic activity,” the Minister said.
Solution options
The minister proposes to reduce the number of tax regimes. Today we have 14 tax regimes – different ways of taxation of different categories. And it is necessary to come to a maximum of 3 regimes.
“And to know very clearly: for active individuals should be one regime, which will be as simple and convenient as possible, and for legal entities – if necessary, leave one or two. And, I repeat, regardless of the regime, I agree – the load on wages should be reduced. On the one hand, this will give people more income, and on the other hand, it will increase activity, so that in the future we will have something to be happy about”.
By the way, the ministry plans to analyze the work of the regime for freelancers, for some reason calling it a “pilot”. It realized there that it clearly carries a much lower burden than that of a salaried employee, and now there are fears that many will rush into that zone.
And they will be perfectly understandable. After all, today in Moldova several types of taxes are charged on the official salary. Income tax of 12% and contribution to compulsory medical insurance of 9% are withheld from the employee, 21% in total. The employer is charged a social contribution of 24%, and in some sectors even more. Thus, the total tax burden on payroll is approximately 45-50%, although the exact amount depends on the industry, benefits and deductions. And it is easy to understand the desire of many to move to freelancing – there is a single rate of 15% for them. The difference is obvious, and it creates interest in easier, more transparent schemes.
