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Moldova — Transnistria: Rules for Business

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Liliana Agarcova / July 25, 2004
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A meeting of businessmen from Moldova, Transnistria and Gagauzia (Cocieri/Dubasari) was scheduled for early July. There have already been several meetings of this kind. They are held actively, but rarely — politicians hamper. The last of these meetings-discussions was held in Chisinau in November of 2003 at the initiative of the Centre for Strategic Studies and Reforms (CISR), the Small Business Association (Chisinau) and the Centre of Economic Studies, the Union of Manufacturers, Agrarians and Entrepreneurs (Tiraspol).

The motto was: “No word on politics, only on improving conditions for mutually advantageous collaboration”. The parties agreed that by considering the interests of both business communities it would be easier to restore the integrity of the economic space, attract investors and large projects, jointly and proudly enter the external markets.

Recommendations were expressed, as well as the desire to form a consulting council for the authorities. But the “Kozak Memorandum” incident interfered. And the plans to meet again were thwarted by the recurrent burst of politicians’ emotions, this time regarding the right to privatize industrial enterprises in Transnistria.

Fortunately, the life does not end here. And the search for common grounds to restore the integrity of the economic area of Moldova as a “common state” has to go on. More so, since the Republic of Moldova made several “steps forward” regarding registration, taxation, and protection of consumer rights.

Thus, so far, the problem of registration of economic entities from Transnistria at the State Registration Chamber of the Republic of Moldova and issue of papers confirming the place of manufacturing goods and services in order to apply VAT were the most spiny ones. However, the registration allowed economic entities from eastern raions of RM not to apply VAT on delivered goods and services, but it did require passing a series of bureaucratic procedures within tax and customs bodies and at the Chamber of Licensing. On the one hand, the provision on the registration of economic entities from the eastern raions at the Registration Chamber of RM in the Law on Enforcement of Title III of the Tax Code “Value Added Tax” may be seen as political, but on the other hand they may be seen as a tax concession upon delivery of goods and services, compared to those economic entities that are not registered. It is also important that the registration of enterprises from Transnistria has automatically granted a benefit to economic entities from the right bank of the Dniester, since the services they have received were not considered as imported and, therefore, the recipients of the services in Moldova were not obliged to pay VAT for these services.

More than a year passed since this novelty has been introduced (measures to carry out export-import operations by economic entities from eastern raions — that is the title of the decision of the Government of RM). And if at first it triggered negative reactions among Transdnistrian administration and enterprises, now the situation is totally different. According to the President V. Voronin, more than 400 economic entities of Transnistria, including “Sheriff”, have registered with the Registration Chamber of RM over the last weeks. What does this mean? One may assume that the decision to register was inspired by the economic benefits available. But it may also be related to the extension of the deadline for inclusion of Transdnistrian economic entities into the Moldovan State Register of Enterprises from January 1, 2004 to January 1, 2005? Or do Transdnistrian enterprises just bide their time?

Apparently, the issue of application of VAT on export-import operations of Transdnistrian enterprises has been settled, but it’s not. Most likely, political considerations were decisive in deciding on the registration of economic entities from Transnistria, rather than economic ones. And Moldovan legislators, having disregarded the specifics of VAT taxation of services, automatically exempted Moldovan recipients of services from the left bank of the Dniester of VAT. After all VAT applied to imported services is paid by their recipients, with no right to offset paid VAT during the future delivery of goods and services. As a result of this decision, the state budget of Moldova had to “lose”, while economic entities-recipients of services to gain.

And now, after a year, the Government of Moldova examines the issue of taxation of services rendered by Transdnistrian enterprises and it may well happen that these services will be considered as imported and their recipients will be taxed.

Since the business environment for the relations between economic entities of Transnistria and Moldova is still unregulated, discussions between businessmen might be of great help. And there are a lot of questions that require mutually acceptable solutions. Let us mention just the most important:

A lot of time was wasted until Moldova and Transnistria finally came to an understanding that a joint agreement is to be worked out on the federative “common state”. However, the process of reaching common grounds is difficult. Administrations agree and disagree, while the population and economy suffer. As long as both parties are close to a consensus on establishing a “common economic area”, politicians and officials, rather than hamper contacts between businessmen should make use of their practical experience and initiative. We have to come to an agreement “for better is a neighbour that is near than a brother far off”. And this Solomon’s parable is 3000 years old.
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