a number of primary agricultural products, sugar, and biofuel. As of October 1, 2018, a new 10 percent rate has been introduced for hotel, cafeteria and restaurants services. Exemptions and exceptions to the general VAT regime abound and there is also a special VAT treatment regime for investments.

Mandatory contributions to the State Social Insurance Budget are the second most important source of budgetary revenue, with a share of 22 percent of total revenues in 2017; it is also the second most stable source since 2004. The third most important source of revenues is excise taxes, accounting for around 11 percent of total revenues. The list of goods subject to excise taxes include alcoholic beverages, processed tobacco goods, oil and derivatives, caviar and caviar substitutes, perfumes, furs and cars.

The Personal Income Tax (PIT), the CIT and payments for mandatory health insurance account for around 7 percent of total revenues each. For the year 2018, health insurance contribution rates have been maintained at the level of 9 percent of the labor remuneration fund and are split into two equal contributions of 4.5 percent for employees and 4.5 percent for employers. Until October 1, 2018, the PIT was a progressive two-tier system with 7 percent for the portion of annual income up to MDL 33,000 and 18 percent for incomes above that threshold, while the CIT was set at 15 percent. As part of the fiscal reforms package adopted in 2018, a flat income tax rate of 12 percent was introduced. The amount of income exempt from PIT was approved at the level of the official minimum subsistence level (MDL 24,000 per year). Income obtained from farming is taxed at 7 percent. The PIT and CIT were the most volatile sources of budgetary income between 2004 and 2017.

**Table 1. General government revenues in Republic of Moldova,** **<u>year 2017.</u>**

|Item|Million MDL|% of GDP|% of total<br>revenues|
|---|---|---|---|
|Revenues|53377.6|35.6|100.0|
|**Taxes and fees**|**34475.8**|**23.0**|**64.6**|
|Income tax|7722.8|5.1|14.5|
|_PIT_|_3648.9_|_2.4_|_6.8_|
|_CIT_|_4073.9_|_2.7_|_7.6_|
|Taxes onproperty|546.2|0.4|1.0|
|Taxes ongoods and services|24615.7|16.4|46.1|
|_VAT_|_16870.1_|_11.2_|_31.6_|
|_Excises_|_5950.0_|_4.0_|_11.1_|
|_Other taxes ongoods and services_|_1795.6_|_1.2_|_3.4_|
|Taxes on international trade and transactions|1591.1|1.1|3.0|
|**Contributions andpayments on mandatory insurance**|**15512.4**|**10.3**|**29.1**|
|Contributions for mandatorystate social insurance|11864.0|7.9|22.2|
|Payments for mandatoryhealth insurance|3648.4|2.4|6.8|
|**Grants**|**1008.8**|**0.7**|**1.9**|
|**Other revenue**|**2380.6**|**1.6**|**4.5**|
|Propertyincome|425.4|0.3|0.8|
|Sales ofgoods and services|1394.3|0.9|2.6|
|Fines andpenalties|364.0|0.2|0.7|
|Voluntarydonations|142.2|0.1|0.3|
|**Other revenues not included elsewhere**|**54.7**|**0.0**|**0.1**|

Note: The National Bureau of Statistics calculated the semi-definite GDP figures for the year 2017 according to the UN System of National Accounts calculation methodology, version 2008 and the European System of Accounts, version 2010 (SNA, UN-2008/SEC-2010). For the sake of comparability, the GDP percentage in this table and elsewhere in the text are calculated using the previous GDP methodology. The difference between GDP calculated based on the updated and previous methodology is +17 percent.

Source: Ministry of Finance of the Republic of Moldova, “Report on execution of the 2017 National Public Budget”, <u>http://mf.gov.md/ro/download/file/fid/12576</u> and authors’ calculations.

Combined, these six revenue sources – VAT, social insurance, excises, CIT, PIT and health insurance contributions - currently generate around 86 percent of the total revenues of the general government budget and the general trend has been that of consolidation of the total budgetary revenue around these core taxes.

# **2.2. Main types of expenditures**

In 2017, total expenditures of the general government in Moldova stood at MDL 54.5 billion, equivalent to 36.3 percent of GDP. The bulk of government expenditures are designated for social area policies (Table 2).

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