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High taxes paid by employers make them pay salaries illegally, expert


https://www.ipn.md/index.php/en/high-taxes-paid-by-employers-make-them-pay-salaries-illegally-7978_1048019.html

The high taxes paid by employers make them pay salaries illegally or “in envelope”. To fight this phenomenon, the authorities should, on the one hand, stimulate the employers from fiscal viewpoint and, on the other hand,  should make a systematic effort to identify the companies and employers that pay salaries illegally and to institute appropriate punishment, said the economist of the Independent Think Tank “Expert-Grup” Yuri Morcotylo.

Asked by IPN to comment, the economist said the fiscal pressure is one of the main causes that make the employers pay salaries illegally. “In Moldova, effort has been made during the past ten years to diminish the tax rates, mainly the income tax rates. The corporate rate was decreased to 12%, but the taxes on social contributions, where the employers had to pay 23%, remained a burden. This rate was now declined to 18% and, hypothetically, this should take the employees out of the shadow,” stated the expert. But the effects of the measures to diminish the tax rates on social contribution will have a reflection in statistics during the next few years, when the business sector will be convinced that, regardless of the political situation in the country, the measures taken to stimulate them will be maintained.

Yuri Morcotylo noted that to fight undeclared labor, the State Tax Inspectorate and the Labor Inspectorate should more thoroughly analyze and punish those who pay salaries “in envelope”, orienting themselves mainly to medium-sized and large companies. “In our country, many cases were identified, but were ignored, no matter in what areas they were discovered, either the building sector or trade. No fines were imposed or artificial reports were compiled. At least the inspections carried out by the State Tax Service have been intensified,” he stated. The expert also said a clear message that the illegal payment of salaries in Moldova will not be tolerated should be conveyed. “A systematic effort to identify the companies and employers that continue this practice is needed. There should be a combination between stimuli and penalties.”

According to the economist, the payment of salaries “in envelope” is related to the so-called fiscal ethics. “The business entities, when they see that the public money they pay into the budget is not spent efficiently or is stolen, are motivated to avoid paying taxes, including those for employees. Owing to tax evasion, the state loses about 8 billion lei, at least half of which can be classed as social contribution and health insurance taxes.”

Yuri Morcotylo said the state loses, but the employees who accept salaries “in envelope” also lose. This will become more evident when the persons reach retirement as taxes are paid on the sum they receive officially, which is lower than the real one. This way, when the persons retire, they will get a much lower pension than they would have received if the official salary had been higher. The persons employed without a work contract are not medically insured and will cover all the costs themselves in case of disease.

According to the National Bureau of Statistics, undeclared labor grew slightly in 2018, representing 6.6% of the salary earners, as opposed to 6.2% in 2017. Undeclared labor is any work provided by a private individual for and under the authority of an employer, but without signing an individual work contract. The practice of employing persons based on verbal agreements is more often used in relation to males, mainly in such areas as agriculture, trade and the building sector.