Marina Solovieva, Program Director of the Independent Center Expert grup
The text of the program is not yet available, but a Mission statement has been issued outlining the preliminary findings of the visit.
Focus on budget consolidation
The Fund’s recommendations on economic policy largely concern the fiscal sphere. The focus of Moldova’s fiscal policy should be on budget consolidation.
“In the medium term, the budget deficit will be reduced to 3.5% by 2029, ensuring sufficient fiscal space to support capital investments, wage reform and social spending,” comments Marina Solovieva, Program Director of the Independent Center Expert Grup. – To translate from macroeconomic language: we are recommended not so much to reduce the expenditure part of the budget as to increase its revenue part”.
That is, the budget should be sufficient for infrastructure, growth of salaries in the public sector and social expenditures, and for this purpose tax revenues should increase.
It is planned to achieve this goal by expanding the VAT base, simplifying the income tax system and improving the administration of tax revenues.
“The IMF mission does not go into details, but the specific content of these proposals can be guessed by looking at the previous report on Moldova,” continues Marina Solovieva. – The priorities include optimizing VAT and income tax exemptions and consolidating fragmented income tax systems.
What does optimization of VAT exemptions imply?
“There have been discussions with the government about applying the standard VAT rate (20%) to things to which reduced rates are currently applied or not applied at all,” the expert specifies. – These are digital services, imports of low-value goods (parcels), bakery and dairy products, catering, car imports, agricultural products, electricity, heat, hot water, natural and liquefied gas, and services of educational institutions. We’ll see which of these the government will agree to”.
At the same time, the IMF notes that “higher consumption taxes would require a revision of the income and property tax system, given the higher propensity of low-income households to consume”.
In this sense, “reforms that help maintain the progressivity of the tax system, including more targeted taxation of capital income, property (including real estate), and inheritance, would help achieve income generation and redistribution objectives.”
“I translate again into simple language: the abolition of preferential VAT rates will hit, first of all, the poorest, because they spend all their income (and pay VAT),” Solovyova said. – Therefore, this should be compensated by more progressive taxation of income and property of the rich (the richer, the more taxes).
By “simplification of the income taxation system”, it was probably meant that, for example, with the introduction in 2026 of a new taxation regime for freelancers’ income, we now have at least ten different approaches to taxation of income from labor activity, and it would be necessary to simplify this diversity”.
On the zero tax rate on retained earnings
Also, the IMF last time criticized the zero tax rate on retained earnings of companies, the specialist notes.
“The Fund noted that this regime is less effective in stimulating investment from SMEs compared to mature companies,” the expert comments. – Unlike mature companies, startups, as a rule, do not have retained earnings. This means that they are less likely to be able to take advantage of this benefit.”
Instead, they often depend on new injections of equity capital, a source of funding that receives no benefits.
This different treatment of retained earnings and new equity financing creates a lock-in effect: mature companies have an incentive to accumulate capital internally, even for projects with lower returns, rather than having capital reallocated to more productive startups with high growth potential.
“In addition, international experience shows that the introduction of a zero tax rate on retained earnings of companies is usually accompanied by a significant reduction in budget revenues,” notes Marina Solovieva. – At the same time, its impact on investments remains unclear”.
