One of the most widely discussed topics recently has been tax reform, which is expected to be implemented starting next year. The previous Government faced quite strong criticism because of the painful effects this reform could have. The new Government intends to “fine-tune” it and improve public communication around it, but it is not abandoning the reform either. This is understandable, given the current state of public finances, which leaves much to be desired.

The reform is expected to bring more than 6 billion lei into the state budget next year alone. This amount is practically equivalent to what the state will pay in 2027 in interest on previously contracted loans. Alternatively, viewed through the lens of the budget deficit, the tax reform would cover almost one-third of it.

Therefore, it is clear that the planned reform is of crucial importance for the Government. However, the issue should not be viewed solely from the perspective of the additional revenue the state will obtain, but also through the lens of its consequences for taxpayers, especially for businesses.

In my personal opinion, tax reform must be addressed in the broader context of the challenges faced by the business environment. In other words, authorities should not focus only on increasing the tax burden on businesses, but should also introduce solutions aimed at removing the barriers that hinder business development, allowing companies to cope with the effects of the reform.

This requires a comprehensive assessment of the most serious problems affecting business development.

The first major issue is the current legislative and regulatory framework governing entrepreneurial activity, which contains numerous barriers and restrictions, often unjustified. More than 20 years have passed since the previous major assessments of the legislative and regulatory framework governing business activity (Guillotine 1 and 2), and it is evident that the time has come for a new large-scale review. This is even more necessary given that Moldova’s process of approaching the European Union also requires a revision of the existing legislative and regulatory framework.

Another major issue that authorities should continue to address is the difficult situation on the labour market. The majority of companies are facing an acute shortage of workforce, and according to official estimates, this shortage amounts to around 300,000 workers nationwide. The state must continue to liberalize the labour market, but it must also introduce comprehensive national programmes for workforce retraining, encourage Moldovans who have left abroad to return home, and develop other measures to address the labour shortage.

Another significant problem is the low level of protection provided to domestic producers. They are often left to fend for themselves and simply lack the capacity to compete with imports or with large international corporations operating on the local market. Not to mention that competition is often unfair.

Other challenges include:

• limited access to financing under reasonably acceptable lending conditions;
• a high level of bureaucracy;
• an excessive and unjustified number of inspections;
• the consequences of the war in the neighbouring country; and other difficulties.

All these issues should be taken into consideration by decision-makers, with the state contributing, within its capabilities, to resolving them.

Because if this does not happen, while the tax burden continues to increase, the business environment may eventually become unable to fulfil its role as a partner of the state in addressing socio-economic challenges.

Ion Scurtu
Businessman, investor, philanthropist