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The document includes proposals to amend the tax and customs law and the related laws. The economist Veaceslav Ionita, believes that through these measures, the MoF wants practically to tax the largest market in the world, mentioning that it is a newfangled practice taken from other countries, including European. The expert argues that, in their turn, these companies could increase the payments for the services provided.
It is estimated that by introducing these new taxes, next year, additional revenues amounting to MDL 100 million will be collected to the state budget.
New taxable entities
Thus, according to the document, the MoF proposes a series of amendments to the tax law. First of all, ‘non-residents that perform entrepreneurial activity without holding the organizational-legal form in the Republic of Moldova and that provide services via electronic networks and obtain income from individuals residing in the Republic of Moldova who do not perform entrepreneurial activity, are also included in the category taxable entities.
Non-residents performing entrepreneurial activity without having the organizational-legal form in the RM, the so-called intermediaries that help resident individuals who do not carry out entrepreneurial activity to pay different services through electronic networks from other non-residents, the delivery place of which is considered to be the Republic of Moldova, will also become taxable entities.
Which services will be taxed?
The services provided through electronic networks will be considered the services provided via telecommunication information networks, and via global internet network, automated with the use of information technologies.
In this respect, the following are included: digital transmission of radio or TV programs, granting access to the audiovisual content, granting the rights to use electronic books (editions) and other electronic publications via the Internet network, as well as information materials, learning materials, graphic presentations, musical compositions with or without text, audio-visual productions, including by granting remote access for viewing or listening, granting the right to use computer programs (including computer games), databases via Internet network, by granting remote access to them, providing advertising services on the Internet, including the use of computer programs and databases, as well as providing advertising areas (spaces) on the Internet, placing offers regarding the procurement (sale) of goods (services, works), providing online computational power to place the information in the information systems, granting domains, providing hosting services and many other services of this type.
European practice
The draft’s Information Note mentions that the practice of applying VAT for electronic services provided by non-resident business entities to the population has been used since 1 January 2018 in the European Union. Also, the draft’s authors claim that, according to the tax laws of Australia, Bahrain, Belarus, European Union, India, Japan, Russia, Saudi Arabia, Serbia, South Korea, the United Arab Emirates and the United States, international companies are responsible for establishing, charging and paying the VAT to the competent authorities for all the paid purchases of applications and for the purchases made by the clients in the application in the respective country.
Thus, according to the concept, the non-resident company that provides electronic services to the resident individuals should register with the State Tax Service and pay and declare every quarter the VAT as regards the delivery of services to the resident individuals. The electronic service E-commerce-VAT, which will be placed on the official website of the State Tax Service, will allow to request the tax code and to submit the VAT information remotely. ‘It should be mentioned that this measure will ensure fair competition between national and international electronic service providers by using the same tax treatment as regards the payment of VAT to the budget. It is estimated that this measure will additionally increase the revenues for 2020 by about MDL 100 million,’ says the draft.
The entertainment, the most dynamic market in the world
The economist Veaceslav Ionita claims, on his personal blog, that through these measures the Government decided to draw attention to the most dynamic global market ‒ the entertainment market, ‘the size of which is comparable to the oil and natural gas market combined. People spend on entertainment more than on anything else. In 2019 this market will reach the share of $2.2 trillion globally or 2.5% of the global GDP. According to PwC, this market is divided into 15 segments, and many of them operate online. It includes: Movies, music, video games, magazines, books, which are purchased online’, Ionita writes.
The expert claims that in 2020 Moldovans will buy goods and services from abroad worth MDL 4.3 billion, which is twice as much as three years ago, when online purchases amounted to MDL 2 billion. This market records a 30% annual growth and is the most dynamic in Moldova. It is not difficult to calculate that in 2020 the online purchases from abroad will reach MDL 6 billion, and in less than in three years they will exceed the amount of MDL 10 billion. ‘Obviously, sooner or later, this market had to arouse the interest of the Government, in the sense of its taxation’, believes Ionita.
He recognizes that it is difficult to determine the size of the market, but the Government assumes that it is about at least MDL 500 million per year, and the taxation of these services would bring additional amount of MDL 100 million to the state budget.
Veaceslav Ionita believes that in order to estimate the market it is necessary to organize a national survey, which will show how much Moldovans spend on online entertainment. ‘This figure will certainly double every 2-2.5 years. According to Ionita, the budget receipts will record the biggest increases in the coming years and will exceed 2-3 times the increases in the budgetary revenues in other areas’.
The novelty of the draft – taxation of individuals
According to the expert, the Government’s intention to tax the online entertainment will create a financial motivation for it and will force it to fight the piracy and the intellectual property theft on the Internet, because the Government will want everything to be legal and taxable. This will probably be beneficial for companies. We, the consumers are the only ones who must understand what is happening, and that beginning with 2020 we will be ‘begged’ by the Government not to ‘steal’ movies, music and online games anymore, but to buy them and also pay taxes for them. Thus, the novelty of the draft ii the fact that individuals will be taxed for the purchased services or goods.
Will the prices for consumers increase?
Ionita says that the prices for consumers will also increase.
‘Prices will obviously increase by 20%. But here comes the next simple question. Is it fair that someone who buys a pack of milk must pay the VAT, and a 14-year-old boy who buys a game for $1 does not have to pay VAT,’ wonders Ionita.
In the following post: The law intends to level the playing field for a local company, which pays the taxes, and for an international company, which only collects money in Moldova. We can mention iTaxi vs Yandex, or local advertising agencies who pay 20% taxes for advertising services vs boys and girls who pay for the advertising with their personal card and do not pay taxes, thus creating some kind of unfair competition. So, the law would make everyone equal. The big dilemma: Will Moldova succeed in persuading all the big players, like Facebook, Google, Netflix and other service providers to open offices in the poorest country in order to collect taxes?’ wonders Ciorici.
The draft law of the MoF was basically approved today by the Cabinet of Ministers and should be submitted to the Parliament as a legislative initiative, for approval. After the Government meeting, the Minister of Finance, Sergiu Pusculita, stated that the proposals on the application of the value added tax to electronic services provided by non-resident business entities for the population on the territory of the Republic of Moldova, were taken from the draft tax policies, developed by Sandu Government. He added that the provisions were also discussed with the external partners.
