"Time" - Do not harm!
InfoMarket agency comments
There is a well-known truth in business, you cannot move quickly during periods of turbulence. The ability to drop emotions, show patience and understand the situation, following the medical principle of "do not harm" this is perhaps the most valuable quality that a politician must have.
We live in the era of changes, the new authorities started to align their positions diligently, changing the legislation. But there is an impression that the Cabinet and the parliamentary majority do not have enough time for examination of the possible consequences of their decisions. Once on this side of the barricade, the new coalition can make some decisions hastily, without looking at the business environment. The extremely fast decision-making against the background of imprudent statements by government officials, the introduction of new rules and requirements, and the change of scenery at the institutional level is undoubtedly stressful situations for the local business environment.
For example, the deputy of the "Action and Solidarity" Party, Vladimir Bolea proposed to establish a moratorium on permissions for the continuation of construction works in the municipality of Chisinau. According to the package of legislative amendments initiated by V. Bolea, the moratorium will be implemented for construction sites inside residential neighborhoods when the distance between new facilities and existing buildings does not exceed the height of the tallest building. The continuation / authorization of constructions will be possible only after receiving written protocols of public consultations, in other words, the consent of the neighbors.
Not a bad idea at first glance but there is a risk that any construction may be frozen for an indefinite period. Since the moratorium does not stipulate anything about the time frame (the mass media announced one year period), the project involves significant risks and restrictions for the construction industry which provides 7.9% of GDP (in 2018) with an increase of 1.1% and the gross value added of this industry increased by 16% in 2018, reaching 17.5 billion lei.
There is no secret that the situation with working specialties in Moldova is worsening from year to year, the deficit is felt in all sectors. A builder is a very popular professional occupation in the neighboring Russian and the European markets. The outflow of specialists in the field of construction will be noticeable during the moratorium and this, perhaps, the weakest point of the bill.
The construction documents should be double checked and brought into compliance with the current legislation which is imperative (it is likely that a change in legislation will also be required). Probably, it is better to do this for each specific case; it is not necessary to disturb the entire industry. This is a more labor-intensive process, but it’s better for both business and the government. It would be better that the wordings of the law have been identified as clearly as possible to avoid any controversial interpretations.
This legislative initiative has not yet been adopted, but another bill, on the abolition of citizenship for investors, has already been voted by the parliament in the first reading. The main argument in favor of its abolition is that there is a risk that people with a dubious past and participants of the "theft of a billion" can obtain citizenship of Moldova, and the program itself is a legalized mechanism for money laundering. The authors of the bill do not like that the names of some people who have received citizenship are not disclosed to the public, and their reputation cannot be verified.
Perhaps there are reasons for excitement, but it can be verified by other means in the multilevel verification mechanism. To date, the country's president has signed two decrees on the granting of such citizenship. It makes sense to provide the deputies with the opportunity to check using the help of intelligence service every applicant / investor before providing citizenship of Moldova.
If this program is canceled, Moldova may face financial and reputational risks. Philip's government entered into an agreement with a consortium of two companies Moldovan Investment Company and Henley & Partners to implement this program. Are financial losses of the state in case of its unilateral early termination prescribed in the contract ? Will these companies demand the return of funds spent on promoting the program abroad over the past seven to eight months? Is it important for Moldova to preserve its reputation if the country (in case of termination of the contract) wants to resume the program in the future (in case of termination of the contract) ?
Let’s keep in mind that an investor who has invested 100 thousand euros in the long-term development project of the country, or 250 thousand euros in a strategically important sector for the country, can apply for Moldovan citizenship. The program might attract 1.3 billion euros over five years. But the investor-applicant of the citizenship of the Republic of Moldova incurs additional expenses for the payment of commissions to the consortium promoting the program costs 25 thousand euros; an accredited program agent costs 10 thousand euros, filing an application and its "audit" costs 11 thousand euros. Moreover, citizens of a number of countries, including Iran, Cuba, North Korea, cannot participate in the program...
The parliamentary commission on economy, budget and finance gave a positive opinion to the draft law on amendments to the Tobacco Control Act, the Tax Code and the Offense Code on Monday. The authors of the the draft law propose to introduce new terms "aerosol of a tobacco product or a similar product', "cigarette for a device for heating tobacco", clarify the term "smoking" manipulating a smokeless tobacco product will be considered smoking.
"Cigarettes for tobacco heating devices" are proposed to be included in the same category of excisable goods as filter cigarettes. The new requirements, if adopted, will come into force on January 1, 2020, that is, the excise tax will be 540 lei per 1000 pieces + 13% of the cost, but not less than 700 lei per 1000 pieces. At the same time, the excise tax on non-filter cigarettes remains preferential.
Moldova has the strictest anti-tobacco laws in Europe. The whole world is concerned with the problem of smoking. New forms of nicotine consumption came to replace cigarettes, those are e-cigarettes, wipes and electric tobacco heating systems. The trend of switching from cigarette consumption to alternative forms is supported by the governments of many countries.
European Commission admits that substances for heating devices ( Heat-Non-Burn ) are not harmful unlike cigarettes and it’s recommended to allocate them in a separate category as a subject of taxation, implementing the excise tax on the basis of the weight. There is no country in the European Union that the excise tax on heating substances equivalent to cigarettes’ excise tax; the difference between them can be eight times, as in the UK, for example, and the excise tax is zero for heating substances in Poland. This approach is due to the fact that the content of harmful substances in the aerosol when heated is 90-95% lower than in cigarettes smoke. This research is confirmed by a number of international institutions and one of the most prestigious organizations in the world - the US Food and Drug Administration (FDA), which studied these types of products within two years.
The proposed increase of the excise tax on heated substances will simply make it expensive to the smokers with a limited income in Moldova. Increased taxes will lead to higher prices for these products, thus, this niche will become attractive for smugglers.
What kind of effect for the budget can impose the introduction of excise taxes on goods intended for heating devices (sticks), if we consider that, according to the Moldovan Customs Service, the share of alternative means of nicotine consumption (electronic cigarettes, wipes, IQOS) is less than 1% of the market? At the meeting of the commission it was mentioned that the budget of the country can receive up to 16 million lei per year from taxation of the sticks. But, how much can loose the budget because of smuggling or in case of the prices increase on sticks? For example, a pack of sticks costs 45 hryvnas (about 27 lei) in the Ukraine. It probably makes sense to study the experience of neighboring countries and regional risks.
In general, it is considered incorrect to criticize the government before the expiration of the first 100 days of its activity, but this is not even a criticism, it’s rather a call to the new authorities to avoid "shooting from their hips". Business always adjusts to the conditions which it is forced to work, but it’s not easy at all; the rules of the game are changing, and there is nothing worse than this uncertainty.
The government and the parliament should remember: some ambitious initiatives can provoke unpleasant consequences for business that barely keeps up floating with the new legislation rules. And, these are work places, tax revenues, social stability, etc.
Each problem has its supporters and opponents but the government must be responsible for their decisions making them as circumspect as possible. It is undesirable the new parliament and government to revise the rules of the game four years later (or even earlier). Business will not stand it. // 06/26/2019 - InfoMarket.