How to Tax Real Estate Property in Moldova?

Until recently, revenues from property taxes throughout Moldovan cities and villages were merely symbolical and represented an extremely small share of already meager local budget revenues. A property tax reform, initiated in 2003, intended to change this situation.

Firstly, all residential properties (so far, in cities only) were re-assessed so as to reflect their market value, considering a multitude of factors like location, condition of apartment building and availability of residential infrastructure. Owners of apartments and houses were informed about the re-assessed value of their property and given the opportunity to petition the decision. Only in Chisinau Municipality, about 190,000 apartments and 28,000 single-family houses were re-assessed.

Secondly, Section VI on Real Estate Property of the Fiscal Code was recently modified. For Chisinau, the tax rate was set at 0.02% of the re-assessed value of taxable property. All other municipalities should set their own rates (0.02% being the minimum allowed), so as to achieve an average increase of 10% in revenues from this particular tax compared to the previous year. For large properties (with surfaces comprised between 100 and 200 square meters), the tax rate is 3 times bigger, and for very large real estate (more than 200 square meters), it is 28 times bigger.

What will be the real outcomes of these policy measures? According to a rather good article in Economic Overview, the impact of these changes, particularly on municipal governments, the ultimate beneficiaries of this reform, has not been calculated. Judging by the extremely small number of transactions on the real estate market, (543 sales, 483 donations, and 346 inheritances in Chisinau in 2006), and a large number of social categories that are exempt from this tax, the municipal budget will fail to incur the much-needed revenues. Theoretically, the tax revenues that could accrue from 9,000 very large residential houses located in Chisinau could make a real difference in the municipal budget. However, experts are rather skeptical because it is obvious that these well-off owners might prefer to experiment with various tax avoidance loops.