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One plenary sitting of the Parliament took place in the period concerned but it had a record duration - more than five hours. The sitting heard a report of the Finance Ministry regarding the execution of the state budget for 2004, with lawmakers raising questions and objections regarding execution of the budget. Also, the same sitting adopted in the first lecture a draft law on bases of the budgetary-fiscal policy for next year. Taking into account the importance of this document, as well as the fact that it will serve as ground for state budget incomes in 2006, both the opposition, and the parliamentary majority demonstrated a great interest for this draft through criticism and proposals, which will be taken into consideration when the draft will be adopted in the final lecture.

I. Draft law on modification and completion of legislative documents on budgetary-fiscal policy and fiscal management for 2006

Commentary by ADEPT: The draft law adopted in the first lecture will establish general principles and norms for implementation of some provisions of the fiscal legislation next year and will create the base of state budget incomes for 2006.

Most and basic amendments envisage the Fiscal Code and namely several key chapters:

Income tax
The amendments call for:

• reduction of income tax for businesses from 18 percent down to 15 percent;
• reduction of income tax for individuals (up to 20,000 lei a year) from 14 percent down to 13 percent and, respectively, from 9 percent down to 8 percent;
• rise of annual personal exemptions from income tax from 3,960 lei up to 4,500 lei and of exemptions for kept people from 600 lei up to 840 lei;
• introduction of a new taxation mechanism for tax payers who raise incomes from advertising and rent of personal and real estate goods, in the size of 10 percent of the payment source;
• regulation of distinct taxation of revenues raised by non-residents in Moldova.

Estimates of the Finance Ministry show that collections from income taxes will increase by about 200 million lei (by 100 million lei from individuals and businesses) after reduction of the fiscal burden.

Value-added tax
The amendments call for annulment of fiscal facilities for importation and supply of drugs, pesticides and mineral fertilizers, equipment, hardware and complementary aggregates. The amendments aim to ensure respect for fiscal equity principle for all businesses, as well as reduction of fiscal evasion.

According to estimates, these amendments will increase the budget revenues on account of VAT by over 150 million lei. On the other hand, annulment of facilities could provoke higher prices for these goods, and therefore many lawmakers expressed dissatisfaction and criticized these amendments, fearing that they will hit the socially vulnerable categories and agricultural producers.

Modification of excise apply principles
A series of modifications in the list of goods for excises, as well as of excises for certain goods are proposed, shortening at the same time the procedure for their fiscal management. About 140 million lei is expected to be additionally collected after introduction of these modifications.

Increase of taxes for licences
The amendments propose the increase of taxes for licences by 11 percent and, respectively, by 39 percent in 2006, in dependence of the medium inflation rate for the past two (respectively five) years, for a series of activities, including: importation, making and sale of ethyl alcohol and alcohol production and beer; importation of tobacco items; importation and sale of oil products. About four million lei is expected to be raised in additional incomes in 2006.

A separate amendment calls for exemption from state tax of public authorities financed from state budget and local public administration authorities, for actions and contesting of court rulings, if these authorities are defendants.

This amendment had earlier provoked a series of objections, including from private sector representatives, who feared that they face an unfair treatment and the state avoids through this mechanism to apply punishment, including financial responsibility, on public functionaries who are to blame for misuse of authority in relations with nongovernmental sector.

II. Draft law on modification and completion of legislative documents on importation of transports

Commentary by ADEPT: The draft law adopted in the first lecture introduces new norms in the Customs Code that prohibit the introduction and placement of motor transports, engines and car bodies older than 10 years under importation customs regimes, customs storehouse, under free zone customs destination.

Also, the draft says that motor transports which cannot be placed under any customs regime or customs destination, as well as those prohibited for introduction in country cannot be registered. The state registration will be based on customs documents which confirm the placement of transport under free circuit in Moldova's territory.

This norm is a response to lots of doubtful cases of registration of transports with violation of customs legislation, as well as of transports prohibited for introduction in Moldova. Several penal cases have been filed in this regard, including against judges who issued decisions on mandatory registration of motor transports by the Information Technologies Department, in spite of absence of necessary customs documents.

III. Decision on execution of the state budget for 2004

Commentary by ADEPT: The Parliament passed a decision and approved the execution of the 2004 state budget with incomes in the amount of 5,533,900,000 lei and spending in the amount of 5,411,900,000 lei, with a surplus of 122 million lei. The executive has already directed this surplus of budgetary sources to foreign debts.

According to a report unveiled by the Finance Ministry, many data on execution chapters were indicated.

Evolutions in macroeconomic sectors
The Gross Domestic Product rose by 7.3 percent in 2004 compared with 2003, up to about 32 billion lei.

The consumer price index grew by 12 percent in the same period, while the monthly inflation was one percent (compared with 1.2 percent in 2003).

The average monthly salary on national economy accounted for 1,104 lei, and rose by about 10 percent.

Exports increased by about 25 percent (by some 196 million dollars) compared with 2003.

Imports rose by 26.5 percent (about 371 million dollars).

The trade balance in 2004 registered a deficit of almost 780 million dollars, by over 175 million dollars more than in 2003.

Budgetary revenues
Compared with 2003, by over 900 million lei more was raised to the budget, by over 200

million lei more than planned. Also, the budgetary incomes in GDP were on the decline.

More than 91 percent of taxes were collected, by about six percentage points more than in 2003. Collections of revenues from all types of taxes were on the rise: income tax, land tax, real estate tax, indirect taxes, excises, VAT, etc.

Over 643 million lei was transferred from the state budget to the fund for assistance of territories in 2004, and about 220 million lei was transferred from budget for special destination (capital investments, state programmes, etc.).

Examining these results, opposition lawmakers highlighted the lack of a well-considered policy on investment of public money in long-term development projects. The budget was appreciated as of consumption, not of perspective, with clear priorities on investment sector and economy development.

Also, lawmakers indicated the need to attract inflows of foreign capital, including of remittances from abroad, in investment sector. They outlined the need to stir up the collection of taxes, to enhance the responsibility of public authorities for allocation and efficient management of public resources, general improvement of business climate.

The executive will fulfil these tasks for execution of the 2005 state budget and for a continued improvement of legislation on this sector.