Taxation: Flat tax in Pridnestrovie
Taxes are low in free market Pridnestrovie. The country has a flat tax with a rate of just 10% regardless of earnings. This, along with other modernizing reforms, has given a boost to the country's economy.
As a sovereign country, Pridnestrovie introduced its own taxation system shortly after independence. In line with other market reforms, the tax system was overhauled and modernized in recent years. Today, the overall tax burden on the Pridnestrovian economy is low — making the country competitive on the world arena and an attractive destination for foreign direct investments.
Personal income tax is levied at a modest 10% rate regardless of level of income, a true flat tax. It was previously 15%, but was lowered on 13 July 2006 by Pridnestrovie's parliament along with generous exemptions and complete tax freedom for low income earners.
Benefits of a flat tax in Pridnestrovie
The flat tax rate of just 10% has brought benefits both to the economy of Pridnestrovie and to the pockets of the nation's taxpayers.
Hoover Institution political scientist Alvin Rabushka points to a number of different countries in the former Soviet bloc that have adopted some form of flat tax in recent years. In addition to Russia, Pridnestrovie and Slovakia, they are Romania, Georgia, Estonia, Latvia, Serbia and Ukraine. He predicts that Poland and the Czech Republic will soon join them.
Tax break: This private sector worker, like everyone else in Pridnestrovie, benefits from a flat tax of just 15% on income.
Why so much interest in the flat tax? A key reason is that it is far more effective at raising revenue than progressive rates. With progressive rates, it looks as if extra revenue is being extracted from the wealthy. But it is also giving them a powerful incentive to arrange their affairs so as to minimize their tax liability or to evade taxes altogether.
With a flat tax, there is much less incentive to engage in tax avoidance or tax evasion. "
History of the tax system
The tax system is an important element of the republic's financial infrastructure; its formation started in 1991. In July 1992 a single system of the State tax service consisting of the Chief State tax inspection and local tax inspections was formed.
The leadership of the republic has always searched for ways of improving the tax system which underwent considerable changes in 2000 when five kinds of taxes were abolished – a value-added tax, a tax on profit, a tax on property of juridical persons, a tax on road users and a tax on sale of fuel, instead a tax on the sales volume was introduced in 2001. The rate of the tax on sales volume didn’t exceed the total amount of five replaced taxes and it provided an optimal tax load encouraging the progress in all the branches of the economy.
The law of Pridnestrovskaia Moldavskaia Respublica “On tax on profits of organizations” that came into force on April 1, 2002 was adopted with a view of further optimization of taxation. On January 1, 2001 a single social tax was introduced; its rate was gradually decreased from 39% to 24% in 2005.
The law “On income tax of physical persons” introduced a single tax rate of 15%, later lowered in July 2006 to 10%. On January 1, 2004 a fixed agricultural tax for agribusiness enterprises was introduced. In 2002 a tax on use of natural resources was established. It led to the increase in the revenue of the state (consolidated) budget from $58.7 million to $110.8 million.
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