A Low Flat Tax Has Been Adopted in Pridnestrovie

August 17, 2007

By Alvin Rabushka


The people of Pridnestrovie regard their land as an independent country, although it has not been internationally recognized as a sovereign state. The jurisdiction’s full name is Pridnestrovskaia Moldavskaia Respublica (Pridnestrovian Moldavian Republic), and it is sometimes referred to as Transnistria. Its long western border is contiguous with the eastern border of Moldova. Its residents contend that on June 28, 1940, Stalin used the Molotov-Ribbentrop Pact, which created spheres of influence for Germany and Russia over several Eastern European countries, to join Pridnestrovie with Moldova. The pact was subsequently annulled, which led Pridnestrovie to argue that Moldova’s claim of sovereignty over its territory is invalid. Following a nationwide referendum, Pridnestrovie declared independence on September 2, 1990.

Despite the lack of international recognition, Pridnestrovia exercises de facto political power. The territory maintains its own border guards and customs inspectors, its own professional military, nine political parties, and its own symbols of nationhood (flag, coat of arms, national anthem, local currency, postage stamps, passports, and constitution). It has its own president, parliament, executive, and judiciary, and a separate national budget of $250 million.

Pridnestrovie introduced its own taxation system shortly after its declaration of independence. On July 13, 2006, its parliament enacted a 10 percent flat tax on personal income, with an exemption of $100 a month ($1,200 a year). The 10 percent flat rate was a reduction from the previous rate of 15 percent, and a higher rate of 30 percent enacted in 2001. The government reduced the rate to maintain competitiveness with such Southeastern European nations as Macedonia, Montenegro, and Albania, which have set their rates at 9-10 percent.

Earlier in 2000 the legislature enacted a sales tax, and used the proceeds to abolish and replace five kinds of taxes—a value-added tax, a tax on profits, a road tax, a property tax on legal entities, and a fuel tax. As in other European countries, Pridnestrovie imposes a social insurance tax (reduced from 35 percent in 2001 to 24 percent in 2005). The remaining taxes include a fixed tax on agribusiness and a tax on the use of natural resources.