Moldova To Increase Indirect Taxes To Gain IMF Financing

by Lorys Charalambous, Tax-News.com, Cyprus

03 November 2009

The Moldovan government will hike indirect taxes as a precondition to gaining access to three-year financing worth USD590m from the Internatinal Monetary Fund (IMF).

Providing the IMF is content with efforts made by Moldova, USD180m will be transfered to finance the country’s budget deficit, which is expected to drift out to 9% of gross domestic product (GDP) in 2009.

In a statement, Moldovan Prime Minister, Vladimir Filat explained that as a precondition to concluding the agreement, the country will need to increase excise duties on petrol, tobacco products, spirits, cosmetics, and luxury cars by as much as 20%. The government also plans to annul the income tax exemption on reinvested profits, and reintroduce the tax at a rate of 10%.

Filat also revealed that retrenchment would be necessary in the public sector, with privileges granted to public sector pensioners withdrawn starting in 2010, and 4,000 public sector redundancies. The retirement age for both the private and public sector is also to be increased by six months.

In his recommendations, Nikolay Gueorguiev, head of the IMF delegation, noted that the measures will contribute to stabilization and recovery of the economy.

The Fund anticipates that the aforementioned measures will close the budget gap to 7% of GDP by 2010, and ensure that inflation remains under control. The IMF anticipates that during 2010, the Moldovan economy will grow 1.5%, followed by strong growth of 5% in 2012.

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