The financial incentives granted to employers – the solution proposed by the Government for legal work

Subsidizing wage increases, but also other incentives and fiscal mechanisms can encourage entrepreneurs to switch to formal work. A social policy in this sense was proposed by the Ministry of Labor and Social Protection and discussed by experts during the international conference “Moldova goes white: solutions to encourage the transition to legal work”. The social policy is proposed in the context where in 2022 there is a deficit of almost 5 billion lei in the social insurance budget, while a study carried out by Expert-Grup and UNDP Moldova estimates the total fiscal losses at 15 billion lei annually.

The proposed mechanism would aim to help companies switch to “white” work and reduce unfair market competition and the risk of informal workers facing extreme poverty at retirement age. Thus, the project provides for the reimbursement of social taxes for employers who increase employees’ salaries by at least 50%.

Marcel Spatari, Minister of Labor and Social Protection of the Republic of Moldova:

“Social insurance is a fundamental element of employee protection. For this reason, the Ministry of Labor and Social Protection proposed a new mechanism for subsidizing wage increases. Through this, we want to stimulate companies to comply, especially companies that under-declare wages, and help them pass the compliance period, and the costs to be partially covered by the state, in the form of tax credits. This mechanism was proposed because the relatively low tax burden rate on salaries and the very high share of undeclared salaries lead to a structural deficit of the state social insurance budget”.

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The phenomenon of partially or fully unreported wages would depend on a variety of factors, including general business conditions; the specific conditions of a branch; the state’s taxing capacity; the quality and volume of services obtained in exchange for the contribution; the pressure of current expenses; the morality of employers and employees; employees’ awareness of the benefits obtained; the level of fairness and credibility of the system. In this sense, the Ministry of Finance of the Republic of Moldova proposes several ways to intervene in the transition to legal work.

Dumitru Budianschi, Minister of Finance of the Republic of Moldova:

“The types of intervention would be subsidizing jobs, subsidizing temporary employment, and subsidizing salary increases. Any subsidy received from the state budget is a tool to bring payments to the official sector. Another mechanism that is used is related to fiscal spending, through the facilitation of taxes and other mandatory payments, which we often try to reduce, to achieve a certain goal, for example, the reduction of informal employment. And the last tool is a credit of any kind, which leads to the imposition of the economic agent to report more official income”.

Foreign investors from the Republic of Moldova support the social policy of financial incentives and want that, in the context of multiple crises, for honest companies are also subsidized.

Ana Groza, Executive Director, Association of Foreign Investors (FIA):

“Foreign investors propose that for all companies there should be social tax exemptions for salary increases, and not necessarily 50%. For example, in the case of a salary increase of 10 thousand lei, the economic agent should benefit from social tax exemptions of 30%. If, for example, it is a salary of up to 15 thousand lei, it should be subsidized by 15%, and if it is up to 20 thousand lei, approximately 10% should be exempted. We believe that this approach will be fair. Subsidization, not only in the context of “blank” and full salary reporting but also in the context of multiple crises, is important for all economic agents. That’s why we have to help honest companies, which pay constantly, to benefit from some subsidies from the state”.

The full discussions on financial incentives can be watched HERE.

The international conference “Moldova goes white: solutions to encourage the transition to legal work” was organized by the Ministry of Labor and Social Protection and the Independent Analytical Center “Expert-Group”, with the financial support of the Soros Moldova Foundation.

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