The budget of Chisinau municipality will keep only half of the income tax paid by private individuals, not 100% as until now. Earlier the municipality kept 50% of the tax paid on entrepreneurial activity, but from January 1 the whole tax will be paid into the state budget. This is provided in the Law on Local Pubic Finances, which from this year is applied in the districts of Basarabeasca, Ocnita and Rascani and in the municipality of Chisinau.

Head of the Chisinau Finance Division Veronica Herta has told IPN that as a result of the implementation of this law, the municipality will lose revenues of 1.5 billion lei. In order to compensate a part of the losses, the state will provide 177 million lei to the capital city. The relations between the central and local authorities will change. The Ministry of Finance determined the formula for financing each of the first-level administrative authorities.

The volume of financing will depend on the unit’s tax capacity, size and number of residents. The allocations to the suburbs of Chisinau will be made directly from the state budget. The Chisinau City Hall will cover only the costs for education and social assistance, through special funds. The money will provided for a definite purpose and the local authorities will be unable to use it for other purposes.

As to the negative aspects of the law, Veronica Herta said the connection between the local public authorities and the economic entities will disappear. If the income tax collected into the settlement’s budget is equal to zero, no mayor will want to create an investment climate in the locality in order to attract economic entities.

According to the Finance Division head, the positive aspects of the law are related to the revenues. In 2013, the state budget allocations to the municipal budget totaled 278 million lei. Now the revenues that exceed 120% will not be transferred to the state budget and the local authorities will thus want to increase the revenues as they will be ale to use them as they want.

The Law on Local Pubic Finances will start to be applied in the other territorial-administrative units of the country in 2015.