There is not much knowledge as well as lucidity as regards concessions designed for NGOs, expert

[Info-Prim Neo interview with Tatiana Grinic, a member of the Association of Professional Accountants and Auditors of Moldova] [ - In a recent meeting with representatives of NGOs, you said that by relevant amendments to the legislation the NGOs providing social assistance were exempted from paying VAT. Judging by the reaction of those who read the news about that meeting, the people want to know more about those amendments. Why were they made?] - I referred to the changes made to the Tax Code last September. Under them, if an NGO that provides social services wants to buy certain goods from a company operating in Moldova for its social programs or to import something for its programs or to provide services on the territory of Moldova, it purchases all these services without paying VAT to the supplier. I want to say that the legislative amendments refer only to the NGOs that provide social services. Other changes to the legislation intended for this type of NGOs re aimed at facilitating their work. Thus, the NGOs that provide social services can enjoy concessions in paying the tax on the land and buildings where they operate, which are designed for providing social services. This fact represents an enormous plus for the work of these public associations. At the same time, the mechanism for applying the new taxation norms is not the best one as the NGOs encounter difficulties in implementing it. [ - Which drawbacks make this mechanism less functional?] - Even if these amendments were made in order to facilitate the work of the NGOs that provide social services, the Tax Inspectorate considers that when an NGO purchases goods, it is not sufficient for it to present a registration certificate showing that it forms part of the nongovernmental sector. The Inspectorate says that in order to benefit from exemptions from the VAT, the NGOs need a public utility certificate that is issued by the Ministry of Justice. Not many NGOs have it. A special commission set up under the Ministry of Justice meets and decides whether to issue this certificate to an NGO. For their part, in order to obtain this document, the public associations must prove that they are useful to society. Furthermore, it is a long-lasting procedure. That’s why a large part of the NGOs that provide social services cannot benefit from exemption from VAT. There is a bill with amendments to the Tax Code that removes the obligation to have a public utility certificate. The amendments are aimed at simplifying the legislative norms stipulated in Article 52 of the Tax Code. There will be a list of NGOs that meet the conditions for being exempted from the income tax and that achieve the statutory goals. They will be automatically exempted from VAT when buying goods and services and from paying the land tax. But the given bill is yet to be adopted by Parliament. There is a problem as regards the delivery by economic entities of goods and services to the NGOs that provide social services. These entities do not have to pay VAT on the deliveries. Yet, they are exempted from paying VAT, not taxed a zero rate. This leads to a heavier VAT burden. The economic entity loses the right to transfer a part of the VAT according to the norms provided in Article 102 of the Tax Code and the loss may be higher than the VAT that would have been increased if such an exemption hadn’t been provided. [ - How many representatives of the nongovernmental sector know about the concessions you mentioned?] - Most of them do not know about them. The problem is that the NGO providing social assistance have a lower budget compared with other NGOs so that they cannot afford to hire an accountant who knows all the subtleties. Consequently, the given NGOs do not profit from these concessions because they don’t know about them. Everyone pays and keeps silent. I think the authorities should carry out awareness-raising campaigns when amendments of the kind are made to the legislation. It is true that the texts of the normative documents are published in the Official Gazette, but the authorities should inform by letters the NGOs that are entitled to concessions. [ - You spoke about concessions on the donations made by companies to NGO. Do the people know and use them?] - These concessions were granted before the introduction of the zero tax rate on companies’ incomes. The company makes donations (philanthropy and sponsorship) in certain amounts and can reduce the taxable income if the donation makes up at most 10% of its total taxable income. If the donation is higher, the company pas an income tax on the excess. The procedure for documenting the donated money differs from that concerning the donation of goods. However, there are unclear aspects both in the legislation and at practical level. For example, the company donated a large sum of money to an NGO. The Tax Inspectorate comes and says that there are not all the required documents. The number and type of these documents differs from inspector to inspector and from inspection to inspection. The Inspectorate often lays emphasis not on the content and actuality of the operation, but on its form, which is not clearly stipulated in the normative document. Thus, many economic entities are discouraged from making donations to NGOs. This is made with the aim of artificially increasing the penalties imposed on a given company. Theoretically, the companies must pay a zero tax on the donated money. But if the donated amount is higher than 10% of the taxable income, the tax paid on the excess represents 15%. Thus, the companies that make donations to public associations have the same concessions as before the introduction of the zero tax. The conclusion is that the regulations concerning the donations made by companies to NGOs should be amended. [ - Why do you think that a part of the businessmen in Moldova avoid financially supporting the NGOs?] - The businessmen in Moldova are themselves in a crisis. But we see that the state punishes the economic entities by imposing an additional tax on them, even if the zero tax was instituted. The abusive fiscal and administrative policy, corruption and the lack of an appropriate environment for activity, the work done in stressful conditions when the inspection bodies interpret the laws as they want represent negative factors that influence the decision of those who make donations. If the national companies were able to donate larger amounts of money without paying taxes and having to deal with abusive inspections, there would be more donors. Now an economic entity that sells a product to an NGO that is exempt from VAT must pay taxes to the state. [Svetlana Cojocaru, Info-Prim Neo]