Biztar Newsletter #4

Newsletter USAID|BIZTAR — Improving Business Environment

USAID|BIZTAR project makes available to the Government and the Moldovan business community this quarterly newsletter to inform our partners, counterparts as well as our beneficiaries on the changes and improvements in the Regulatory and Tax administration reforms.

World Bank’s 2010 Doing Business Report:

Moldova is a top reformer Moldova improved its ranking among the 183 countries covered by the 2010 Doing Business Report, from 103rd last year to 94th this year. The Doing Business Report measures performance in ten different areas. Moldova succeeded last year in introducing reforms in three of these 10 areas, namely, Starting a Business, Registering Property and Paying Taxes. Some of these reforms included assistance from USAID’s Business Regulatory and Tax Administration Reform Project (USAID|BIZTAR). Starting in April, USAID|BIZTAR assisted the government to develop and to begin to implement a reform agenda targeting improvements of Moldova’s business climate.The Action Plan, which was approved following consultations with the private sector, proposed action in almost all of the 10 areas in the Doing Business 2009 report. In the area of starting a business, Moldova simplified the process by implementing an expedited company registration service so that for an additional fee, an entrepreneur can now obtain a company registration certificate within 24 hours. Moreover, the National Bank of Moldova removed the requirement for a notarizing the authorized signatures; businesses can do this directly at the bank if they wish so. Procedures were further simplified after USAID|BIZTAR together with the Registration Chamber and the National Bureau of Statistics (NBS) eliminated one step from the business registration process. Starting June 2009, entrepreneurs wanting to start a business in Moldova can now obtain their statistical code directly at the Registration Chamber along with their registration certificate. A cross-town visit to NBS is no longer required. As a result of these changes, Moldova improved its ranking in business registration from 90th to 77th. In the area of paying taxes, Moldova has improved its ranking from 125th last year to 101st this year. This

Beto Brunn, USAID|BIZTAR COP shakes hands with Melanie Marlett,World Bank Country Manager for Moldova, agreeing on future cooperation for improving the business environment in Moldova was due to recognition of Moldova’s elimination of the corporate income tax, effectively removing any tax on profits. Sorin Hadarca, USAID|BIZTAR expert considers that “Moldova’s ranking proves that important reforms have been undertaken during this year. However, the reform process should not stop here. Much more needs to be done to ease the cost of doing business in Moldova. I am sure that if we continue our efforts, Moldova will rank even higher next year in the Doing Business Report”. Indeed, the USAID|BIZTAR project has ambitious plans to further improve the business environment in Moldova, so as increase Moldova’s ranking and to put Moldova on a sustainable economic growth path. In particular, USAID|BIZTAR is working with the State Tax Inspectorate to simplify and streamline compliance requirements and ensure fair treatment of taxpayers. And perhaps, the best news for 2010 will be the adoption of new laws, drafted with BIZTAR assistance, streaming the process for obtaining construction permits and protecting investors’ rights.

USAID|BIZTAR Newsletter

No.4 | October 2009

USAID|BIZTAR brings digital signatures to Cahul The USAID|BIZTAR Project is working with the Government of Moldova to improve the business enabling environment. In particular, we decrease bureaucracy affecting the private sector by reducing time needed for reporting, streamlining tax administration, curtailing opportunities for corruption and improving access for citizens and businesses to government information. USAID|BIZTAR is organizing on October 29, 2009 at the Chamber of Commerce and Industry (CCI) in Cahul the launch of a regional center for e-signatures in partnership with the Center for Special Telecommunications (CST). With the digital signature businesses will be able to submit reports electronically to state egencies, without having to travel or wait in line. This will save time for accountants to deliver reports, about 11 person-days over the course of a year. At the event, the first two digital signatures will be delivered

to the companies “Cahul PAN” and “Sanatoriul Nufărul Alb”. The Cahul branch of the Chamber of Commerce and Industry (CCI-Cahul) is one of the most active partners of USAID|BIZTAR. It has used BIZTAR resources to relaunch the Regional Working Group on Regulatory Reform (which covers three raions), and it continues to hold periodic meetings of that group, without additional USAID funds. CCI-Cahul is the first entity allowed to issue digital signatures outside of Chisinau. Cahul’s branch of the CCI hopes to issue at least 50 e-signatures by March 31st 2010. Local community and businessmen, representatives of the US Embassy, Chamber of Commerce and Industry, the Center for Special Telecommunications, local authorities, USAID and journalists participated at the event.

Improving Business Environment

USAID|BIZTAR Newsletter

Discussions with the designated Prime Minister Vlad Filat On September 21th 2009 USAID|BIZTAR experts participated at a meeting between Vlad Filat, and civil society professional organizations representatives. The meeting was attended by over 35 participants and at least 30 journalists, including 10 TV crews. Among the invited organizations were think tanks, Producers Associations, NGOs, Banking Associations, Foreign Investor Association, National Association of Employers, Trade Union Confederation and others. Most speakers proposed policy solutions to the new Prime Minister. Here are the main ideas communicated by participants (selection): Vlad Filat, designated Premier Minister: We will have a greater degree of transparency in ruling and the civil society will be a partner in elaborating and implementing policies.We will have a different kind of government - the coalition, which implies a strong internal control and doesn’t allow usurpation of power by one person or one party in the government. Petru Chiriac, leader of the Confederation of Trade Unions of Moldova: Once in three years should be recalculated pensions.We welcome the creation of

the Ministry of Labor and Social Protection. I propose to create a social and economic council and labor arbitration. Courts now ignore cases concerning forced leave. A major problem is that wages are too low compared to the cost of services in our country.We think it's important to have a law on minimum subsistence cost. Pavel Caba,Vice President of Construction Employers’ Federation: If we take down bureaucracy, we could build a housing block in two years. In the current situation need the same time only for bureaucratic procedures.The construction branch is in a crisis.There are over one million square meters of unfinished homes in Moldova, which cost over one billion Euros. Sorin Hadârcă, USAID | BIZTAR: It is important that business speaks up.We need a guillotine for permits and authorizations.We need modern methods for accessing public services, because citizens should not be humiliated, when calling a public service. Armaşu Dinu, Director of the Association of Foreign Investors: We want to have a rule of law.There are issues of principle.VAT refund works poorly and some companies are waiting two years for their VAT refund.

USAID|BIZTAR Newsletter

No.4 | October 2009

Business registration in Moldova - fewer steps to take It’s easier now for entrepreneurs who are starting a business in Moldova to register with government agencies. In particular, it is no longer necessary to go to the National Bureau of Statistics (NBS) to register and to get a statistical code. Previously, in order to register a new business in Moldova, the entrepreneur had to visit several institutions, such as the State Registration Chamber (SRC), State Tax Service, National Medical Insurance Company, National Social Insurance House and until recently NBS. This takes both time and money that both entrepreneurs and governmental agencies could best use in other activities, especially during a recession. Also, these barriers discourage formalization and, ultimately, limit competition. However, starting June 2009, entrepreneurs wanting to start a business in Moldova can now get their statistical codes directly at the Registration Chamber together with their registration certificate; a cross-town visit to the NBS is no longer required. This is due to the reengineering of the processes at the Registration Chamber and NBS with USAID|BIZTAR assistance. In addition, information on statistical reporting requirements for a newly registered business, which previously could only be obtained at an NBS office, now is also provided at the Registration Chamber. As a result, each entrepreneur saves, on average, at least three hours in his or her busy schedule. That actually means that together all new Moldovan businesses will save more than a half a million Moldavian Lei or about $50,000 in their first year of operation. Eliminating registration at NBS means one less opportunity for bribe seeking. And this is one step forward in the BIZTAR’s objective to create a one stop business registration process in Moldova.

Alina Ghimp, Head of Division at the Registartion Chamber, hands in a Registration Certificate to an entrepreneur, explaining the simplification of the registration procedure. In 2008, the World Bank’s Doing Business report indicated that companies had to navigate 9 procedures to start a business in Moldova – including registration at NBS. Now with only 8 procedures, Moldova’s Doing Business ranking has increased from 90th to 77th in the world. Alexandru Gorincioi, an entrepreneur from Ungheni, a city in the center of Moldova, recently registered his business. “It took me one day to visit the NBS in Chisinau to register my business. Besides the fact that I had to travel to Chisinau, I lost one hour at the NBS, waiting for the clerk to register my business and give me the statistical codes”, shares Mr. Gorincioi from his experience. He was very impressed by the news that this requirement has now been eliminated. “Every step taken toward easing the way of doing business in Moldova is a success for each businessman”, he concluded.

Testing phase of Declaratia Rapida has ended The program Declaratia rapida was tested during AugustOctober 2009. During the same period, the state enterprise “Fiscservinform” and USAID Business Regulatory and Tax Administration Reform Project (USAID|BIZTAR) organized training seminars for accountants from 13 rayons: Balti, Singerei, Orhei, Riscani, Rezina, Soldanesti, Telenesti, Glodeni, Falesti, Floresti, Criuleni etc. More than 450 accountants were taught to use Declaratia rapida. During the testing period, the accountants submitted more suggestions regarding program’s improvement. All suggestions were studied and taken into account by “Fiscservinform” while making the modifications.

Currently, a group of 5 operators within the Main State Tax Inspectorate collects in real time tax declarations generated in Declaratia rapida program. Declaratia rapida is a new service launched by State Tax Service that allows automatic filling of tax forms and printing of a barcode containing all introduced data. The barcode stores all the information included in reports. The information is introduced automatically in the database of State Tax Service by scanning the barcodes. At the same time, the taxpayers’ current account is updated automatically. Declaratia rapida is distributed for free on CD’s or can be downloaded from www.servicii.fisc.md

Editors: Gabriela Gordila, Ion Grosu, Mariana Dron, Beto Brunn Design: Ion Grosu, Pictures: DAI, web: www.biztar.md

BIZTAR/Moldova project is funded by the US Agency for International Development (USAID) and implemented by Development Alternatives Inc. (DAI) The opinions expressed herein are those of the author(s) and do not necessarily reflect the views of USAID.