Marina Solovieva
This is the comment from Marina Solovyova, Program Director at the Expert-Grup Center. It concerns the tax policy proposals developed by the Ministry of Finance for next year.
The expert draws attention to the Ministry of Finance’s proposal to “apply a standard VAT rate to housing and housing rentals.” The government intends to add a 20% VAT to the prices of apartments and houses, as well as to the cost of housing rentals. The authors cite the need to bring the provisions of the Tax Code into line with the provisions of Directive 2006/112/EC on the common system of value-added tax.
“As for the EU Directive, that’s all well and good,” Solovyova comments. “But every time the issue has come up in Moldova that the minimum wage should be no less than 50% of the national average wage—because that’s what the EU directive stipulates—government officials have responded: we are not obligated to comply with EU directives.
Maybe then we aren’t obligated to implement VAT on housing either? And take the local context into account? And the context is such that, with current housing prices, it is impossible for a standard family to buy a home even with a mortgage, especially if it is a “Zumer” family. Renting is also unrealistic, especially if VAT is added to the rent. The only options left are to move back in with Mom or leave the country.”
According to the expert, such a policy “does not align with the government’s statements on demographics.”
In addition, Marina Solovyova notes that in EU countries, VAT is applied only to the initial sale of housing (from construction companies to the buyer), and is not applied to subsequent sales, as no added value is generated. The Ministry of Finance’s text, however, is formulated in general terms, and this aspect is not clarified.
Concessions for the Wealthy
At the same time, the ministry proposes to exempt some owners of expensive housing from property tax and to narrow the scope of its application. Under the current system, in addition to the real estate tax, a property tax (0.8% of the value) applies to “luxury” housing.
Housing is considered luxury if it meets two criteria simultaneously: an area of more than 120 square meters and a value exceeding 200 times the average salary (which currently corresponds to approximately 3.3 million lei or 165,000 euros).
The Ministry of Finance proposes removing the area criterion and raising the value criterion to 10 million lei (about 500,000 euros), citing the recent cadastral revaluation of real estate as justification. In addition, it is proposed that the 1% tax rate apply only to the value of the home exceeding the threshold, rather than to the total value of the property, as is currently the case.
“I agree that area should not be a criterion: our largest homes are actually in poor rural areas, where it is still customary for several generations to live under one roof, which does not make these homes a luxury,” the expert continues. “But the cadastral revaluation of housing was carried out precisely to increase state budget revenues from property tax, among other things.
Furthermore, owners of homes valued at 499,000 euros (with an average salary of 800 euros) are hardly the people who are in dire need of tax breaks. And finally, Moldova’s property tax revenues are extremely low compared to the EU, which they love to cite as a benchmark. Property taxes should be expanded, not reduced.”
If we compare these two proposals—introducing VAT on housing rentals and reducing the property tax base for owners of expensive homes—we can observe the “Matthew effect,” well-known to economists and sociologists (“For to everyone who has, more will be given, and he will have an abundance; but from the one who has not, even what he has will be taken away” Matt. 25:29)—a phenomenon convincingly demonstrated by Finance Minister Marina Solovyova’s dual approach.
“Those who do not own a home will pay more in rent, while those who own expensive homes will pay less in taxes. It’s Robin Hood in reverse,” the expert concludes.
