**<u>Table 16. Measures of efficiency of taxes in Moldova</u>**

||Tax|collectionper 1p.|p. increase by|povertylines|Targeting: s|hare of tax bud|getpaid by|
|---|---|---|---|---|---|---|---|
||national|international(3.2)|international|(5.5) poverty gap|Bottom 10|Bottom 40|Top20|
|**SSC**|**7,582**|**13,491**|**4,371**|**25,830**|**1**|**8**|**58**|
|SIC employee|4,795|6,839|2,186|13,336|1|14|48|
|MIC employee|6,791|6,093|2,326|17,319|1|12|52|
|SIC employer|8,596|16,089|4,439|30,697|1|7|59|
|MIC employer|10,640|75,804|4,563|27,086|1|10|56|
|**Direct taxes**|**5,945**|**6,357**|**3,484**|**17,863**|**1**|**11**|**57**|
|Personal income tax|9,437|8,032|4,096|21,921|1|10|59|
|Land tax|1,173|1,997|1,355|2,498|9|41|14|
|patent tax|5,865|2,153|1,248|8,142|4|22|31|
|**Indirect taxes**|**953**|**2,898**|**1,022**|**3,304**|**4**|**26**|**33**|
|VAT|921|2,724|971|3,162|4|26|33|
|Import duties|767|2,546|627|2,220|5|29|29|
|Excise|1,195|2,096|951|2,779|5|25|37|

Notes: revenues are in mln. MDL SIC – social insurance contributions, MIC – medical insurance contributions/ National - below the national poverty line (1562.8 MDL per month per adult equivalent) International - below the international line (3.2 USD/day in 2011 PPP or 759.4 MDL per month per capita) International - below the international line (5.5 USD/day in 2011 PPP or 1305.2 MDL per month per capita) Income deciles were defined on the basis of disposable income plus tax for direct taxes and SSC and disposable income for indirect taxes. Source: authors’ calculations using HBS-2017 data.

Direct taxes and social contributions are more efficient in tax collection considering the poverty and inequality increase effects (Table 16). PIT is the most efficient direct tax in terms of redistribution effects among the direct taxes. PIT decreases inequality and has the highest tax collection for one point of poverty increase. In other words, it causes the lowest increase in poverty per one dollar collected. It also has the largest share of collections paid by the top income quintile (59 percent), while the bottom 40 percent of the income distribution contribute only 10 percent.

Indirect taxes are significantly less efficient in terms of redistribution. All indirect taxes increase inequality and have relatively low collection levels per one percentage point increase in poverty. They are also quite poorly targeted in the sense that large share of tax revenues comes from the low part of the distribution. VAT, for example, generates 26 percent of collections from the bottom 40 percent of the income distribution; while the top income quintile only contributes 33 percent of collections. Indirect taxes are inferior to direct taxes in terms of redistribution efficiency.

# **4.4. Cross-country comparisons**

In order to place the Moldova analysis in the international context, the results were compared to similar CEQ analysis in four peer countries of the same region and with similar tax-benefit system: Belarus (Bornukova et al., 2017), Romania ( <mark>Inchauste et al., 2018), Russia (Popova et al., 2018) and Ukraine – (Bornukova et al., 2019).</mark> <mark>The redistribution effect of Moldova’s tax-benefit system is similar to other countries in the region. Inequality at market income level is higher than in Belarus and Ukraine, but slightly lower than in Romania and Russia (F</mark> igure 1 <mark>2, left panel). The redistributive effect of the welfare system is also similar – the Gini index in Moldova falls by 18 percentage points – just slightly lower than in peer countries (around 18 percent in Belarus, Romania and Russia and 21 percent in Ukraine). The inequality reduction at the level of disposable income in Moldova is the second highest after Ukraine in this set of countries. Indirect interventions increase the Gini index in all five countries, but most of all in Moldova (by 1.5 percentage points vs 0.2-0.6 percentage points in other countries). and the effect of in-kind transfers in Moldova is smaller than in peer countries. Poverty rates are relatively higher in Moldova than in neighboring countries, but the relative poverty reduction effect of main interventions is similar (F</mark> igure 12, <mark>right panel).</mark> 26