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In the past week debates on Law on the State Budget for 2004 took the center stage. One of the most controversial issues was the initiative to raise the land tax and cancel reduction on VAT payments on import of agricultural equipment, seeds, and raw material for medicines. Government proposed to increase the land tax and cancel reductions on VAT in order to accrue more revenues to the state budget, fact that garnered rich criticism from farmers. Opposition was quick to take advantage of this state of affairs.

To oppose the said changes, "Moldova Noastra Alliance" faction even tried to held protest rallies, fact that made the ruling party react promptly and try to calm down the spirits. First Communist deputies, and later on the President himself, suggested to preserve the current reductions to VAT and give up raising the land tax. Therefore, Government would have to seek ways to cover for the 300,000 MDL it hoped to raise thereby, which wouldn't be an easy task especially as there are bleak predictions for foreign credits.

Apart from the Law on the State Budget for 2004, the Parliament passed other important pieces of legislation.

I. Law on Ratifying the Penal Convention on Corruption

ADEPT Comment: The law ratified Penal Convention on Corruption, adopted by Council of Europe on June 24, 1999. In addition a declaration was adopted stating that Convention shall not have legal effect to the left of Dniester river until a complete resolution of the conflict.

Together with Civil Convention on Corruption the said document are very important pieces of legislation for the member-states as they provide practices to be employed in fighting corruption. In the general provisions, the Convention provides that Council of Europe member states fully comprehend the need to have a joint penal policy aimed at protecting the society from corruption, including via passing appropriate laws and taking appropriate measures. The provision goes on saying that corruption threatens democracy, rule of law, social equality and justice, impairs competition, hinders economic development and threatens the stability of democratic institutions and society morale principles.

The 40 articles of the Convention refer to: notions; actions to taken by each member-state; monitoring Convention enforcement; mechanisms of international cooperation, etc.

II. Law on Modifying Legal Acts regulating state fiscal and budgetary policy

ADEPT Comment: The said law was submitted together with the Law on State Budget for year 2004. Under the Law more than 20 articles of various legal acts are to be amended. In particular, the following acts will be amended:

Law on Privatization. Amendments provide that revenues from the privatization of public patrimony shall be transferred to the state budget; revenues from the privatization of the public patrimony in the possession of administrative-territorial units shall be transferred to their budget; revenues from the sale of the patrimony of institutions funded from various budgets shall be transferred thereof; and revenues from the sale of state shares on companies undergoing privatization shall be used for covering the budget deficit.

Law on entrepreneurship and enterprises was amended so as illegal revenues incurred, by overstating production costs, profitability, sales margin, amount of construction works, and fees on the services rendered, as well as penalties set in amount equal to the revenues incurred shall be transferred to the state budget.

Law on Local Taxes was amended so as agricultural enterprises having revenues from the production and sale their own agricultural products shall not pay local taxes set by the local public administration.

A provision exempting copyright from VAT was excluded from the Law on Copyright.

Law on Road Fund was amended raising taxes for transit on national and international highways, tax on passing highways, tax for issuing authorizations, etc.

Article 6 of the Fiscal Code was amended thereby income tax and taxes payable to the road fund shall be transferred to the state budget, whereas estate tax shall be transferred to the budgets of the administrative-territorial units.

Amendments to the Fiscal Code reduce the quota on income tax, as follows: 10% for annual income below 16,200 MDL; 15% for income ranging between 16,200-21,000 MDL, and 22% for income exceeding 21,000 MDL. A quota of 20% was established for the income tax payable by legal entities.

As it was already mentioned above that deputies rejected Government initiative to cancel in 2004 the reductions to VAT on the important of certain goods as well as raise by 0.3 lei per hectare the land tax, on the grounds that the move would skyrocket the prices on agricultural and pharmacy products and would leave the farmers worse off. Experts claimed that the initiative would have allowed for a more balanced budgetary policy in the long run, however a year before elections the ruling party could not afford the luxury to take unpopular measures, regardless of their potential benefit.

III. Law on Changing the Deadline for Introducing Inspection before Expedition

ADEPT Comment: At the recommendation of the Government deputies excluded from the law the provision stipulating that within a month of the adoption of the Law on Inspection before Expedition the Government was due to select a company to render those services.

Thereby, Parliament suspended the Law on Inspection before Expedition, however enabled Government to proceed selecting a company whenever international monetary institutions would insist on it.

Noteworthy, the failure to enforce inspection before expedition in due time was one of the reasons why IMF did not resume crediting Republic of Moldova last summer. In its turn, the move determined WB as well as other foreign donors to suspend their crediting and assistance programs for Moldova.

IV. Law on Ratifying the second amendment to the Agreement between Republic of Moldova and "Dresner-Bank (Germany)" on surety of payment

ADEPT Comment: The law ratifies the amendment to the Agreement providing for restructuring Moldovan 2 million Euro debt, thereby the first installment worth 200,000 Euro is payable by February 2004, whereas the rest of debt is payable in 2005-2007. Republic of Moldova shall pay a 6% interest rate for the restructuring.

It is worth mentioning that the credit was made to "Perfuson" joint stock venture to complete the construction of a pharmaceutical complex, however because of the incapacity of payment commencing 1999 Government surety was opened. Previously, poor management of the company was cited as one of the main causes of the incapacity of payment.

V. Draft law on modifying the Law on Licensing in the Field of Alcohol Production and Sale

ADEPT Comment: The draft envisages an impairment of the general norms thereby the license for production, storage and wholesale of ethyl alcohol and beer shall be issued for a 3 year period, whereas the tax established in the State Budget shall be paid in installments - 1/3 each year.

Previously the cost of the license was largely debated on in Parliament and was a major issue upon the adoption of the state budget for 2003. Alcohol producers and wholesaler insisted on lowering it, however deputies viewed that it was quite reasonable as it brings quite a profit. Still the said amendment is favorable to the companies working in the field, but it might prove detrimental to the state budget.

VI. Draft law on the modification of legal acts on the use of Russian language in patenting

ADEPT Comment: The draft provides that natural entities may submit application documents either in state language or in Russian, whereas legal entities only in Russian. The modifications were necessary in order to bring the legislation in accordance with the Law on Minorities Rights.

ADEPT previously reported on the opinions of various experts claiming that while the ruling party failed to operate amendments to Constitution, so as to grant an official status to the Russian language, it succeeded in legalize Russian language in various acts such as the Law on Civil Status Acts, Law on Notary, Law on Minorities' Rights, etc. The draft completes the string of laws aimed to prove to Russian minority that the ruling party is trying to fulfil its electoral promises, despite the internal and external opposition.

VII. Draft law on canceling penalties and sanctions accrued by cooperative enterprises

ADEPT Comment: The draft passed in the first reading envisages canceling penalties and sanctions on the debts payable by the cooperative enterprises to the national public budget (state budget and social security budget) as of January 1, 2003.

It is worth mentioning that the law was examined on the eve of the Ordinary Congress of Cooperative Societies attended by the President of the Republic of Moldova. President pledged authorities'support in boosting cooperatives. Noteworthy, previously representatives of cooperative enterprises backed up by opposition in parliament stated that the incumbent ruling intended to nationalize the property of cooperative enterprises and replace their leadership with more loyal people.