Moldova's natural resources are in a precarious state. Water is a scarce resource and the country's afforestation rate is extremely low . This is compounded by inefficient waste management and increased pollution from car emissions. At the same time, the Republic of Moldova fails to explore the potential of fiscal-budgetary instruments in addressing environmental issues. For many years, budget spending on environmental protection has been extremely low. In addition, a number of shortcomings in the regulation of environmental taxes are eroding their ability to stimulate environmentally friendly behaviour of citizens and businesses. The existing system of pollution taxes in the Republic of Moldova is outdated, does not correspond to other countries' practices and is lagging behind other environmental reforms. In this context, this study assesses the national practice in the field of pollution taxes. The study concludes with a set of proposals for making pollution taxes more effective. 

ENVIRONMENTAL TAX SYSTEM OF THE REPUBLIC OF MOLDOVA

The Republic of Moldova has a complex legal framework that also stipulate the use of fiscal-budgetary instruments in implementation of environmental policies. The state's vision on the application of economic instruments is stipulated in the Environmental Strategy for 2014-2023 . Thus, the Strategy's specific objective 4 provides for reducing the negative impact of economic activity on the environment and improving measures to prevent environmental pollution. This objective should be achieved ‘by improving and streamlining fiscal and economic instruments in the field of environmental protection and by modifying the environmental funds system’. The two main documents that regulate the application of environmental taxes are the Tax Code and Law 1540/1998 on Payment for Environmental Pollution. At the same time, some aspects related to the application of fiscal-budgetary instruments are also regulated in other legal acts.

Fiscal and quasi-fiscal charges play an important role in the implementation of environmental policies. In the Republic of Moldova there are the following fiscal and para-fiscal charges:

1. Taxes for the issuance of environmental permits, which are set out in the Nomenclature of Permits annexed to the Law 160/2011 on the Regulation of Entrepreneurial Activity ;
2. Environmental taxes, which are regulated in the Tax Code (taxes on energy, transport and natural resources) and in Law 1540/1998 on Payment for Environmental Pollution (pollution taxes);
3. Fines for violations of environmental law, which are imposed for committing prohibited actions (e.g. poaching, illegal logging, environmental offences). The amount of these fines is set out in the criminal and contravention law;
4. Environmental damage as a result of pollution is regulated by a series of guidelines, methodologies and laws.

Environmental taxes are divided into 4 categories: energy/fuel taxes, transport taxes, pollution taxes and resource taxes. This classification is also used by EUROSTAT . The Republic of Moldova is also moving towards a similar approach (Annex 1). The study ‘Taxes, Fines and Penalties to Prevent Activities Harmful to Biodiversity’  presents the same categories of environmental taxes. 

Despite international practice, the Moldovan authorities have a narrow vision of environmental taxes. Thus, in the 2014-2023 Environmental Strategy, only taxes on natural resources and charges for environmental pollution are considered as fiscal instruments, plus para-fiscal charges such as fines and damages. At the same time, energy and transport taxes are not considered as environmental taxes, which reduces the involvement of public institutions responsible for environmental protection in ‘shaping’ fiscal instruments.

In the Republic of Moldova, the ratio between environmental tax revenues and GDP are comparable to those in the European Union. Between 2015 and 2021, the revenues from environmental taxes almost doubled from almost MDL 2.8 billion to over MDL 5 billion. By ratio revenue from environmental taxes and GDP, the Republic of Moldova ranks average compared to other European countries. Thus, in 2020 in Moldova, these revenues amounted to 2.5% of GDP, while in the EU this indicator was 2.24% (Figure 1). In 2021 compared to 2015, the revenue from energy taxes (fuel excise duties) increased from MDL 1.6 billion to about MDL 2.8 billion. In comparative terms, the ratio between energy tax revenues and GDP are relatively low in the Republic of Moldova compared to other European countries. For example, in 2020, the energy tax revenue-to-GDP ratio in Moldova was 0.4 p.p. lower than the EU average. In recent years, the revenue from transport taxes has fluctuated. Between 2017 and 2021, the revenue from transport taxes varied between MDL 1.8 and 2 billion. At the same time, compared to European countries, Moldova has one of the highest levels of transport tax revenue in relation to GDP. In 2020, this indicator was 0.9% for our country and was twice higher than the EU average. For purposes of international comparisons, pollution and resource taxes have been merged. This approach has been taken over from EUROSTAT, which presents information on pollution and resource tax revenues in aggregated form. Revenues from these taxes increased between 2015 and 2021, from MDL 250 million to almost MDL 400 million. Compared to European countries, the revenues from resource and pollution taxes as a share of GDP are quite high in Moldova. In 2020, the proceeds from taxes on pollution and natural resources in our country accounted for 0.16% of GDP and were 2 times higher than the EU average.

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The analysis was conducted by Expert-Grup Independent Think-Tank as part of the ‘Socially Responsible Management of External Financing’ initiative, in partnership with the Institute for Strategic Initiatives (IPIS), with the support of the Soros Foundation Moldova.