The Ministry of Finance has opened for public consultation the Draft Law on Fiscal and Customs Legislation Simplification - the proposed fiscal policy for 2027. While the reform aims to simplify the tax system and reduce bureaucratic burden, several proposed amendments carry risks for CSOs. Three provisions stand out as particularly damaging
- The structural reduction of the percentage designation mechanism (currently at 2%);
- The weakening of philanthropic incentives; and
- The introduction of an undefined concept of ‘non-eligible expenditure’ for non-commercial organisations.
Structural cut to the percentage designation mechanism
The draft Fiscal Policy Package has sparked public debate due to its far-reaching provisions that are set to reshape the tax system starting in 2027. Some of the proposed changes are also expected to effect CSOs, with implications for their operating and fiscal environment.
Moldova's percentage designation mechanism, introduced in 2017, allows individuals to direct up to 2% of their annual income tax to eligible non-commercial organisations. In 2025, over 41 thousand taxpayers directed a total of approximately 1 million EUR to CSOs, a 37% increase compared to 2024, reflecting growing public trust in civil society. The draft reform proposes cutting the personal income tax rate from 12% to 7% for incomes below 50 thousand EUR per year. Since approximately 96% of taxpayers who use the percentage mechanism earn below this threshold, the structural effect is a reduction of the designation base by approximately 42%. Rough estimations show that this will translate into a loss of approximately 0,6 million EUR in 2026 and 0,8 million EUR in 2027. While lower personal income tax base is crucial to people`s ability to cover their needs and have financial stability, applying these proposed changes will have a significant effect on social impact work. Without considering any measures to tackle the structural losses for civil society, and they cannot be compensated by increases in the number of participating taxpayers alone, the government will reduce one of the important ways of domestic fundraising for organisations, despite its growing popularity. Philanthropic incentives weakened and differentiation between CSOs and public entities eliminated
Article 24(20) places donations to non-commercial organisations and public authorities under the same deductibility ceiling, with no fiscal differentiation. This creates a risk of philanthropic diversion away from independent civil society towards public entities, a dynamic that would erode CSO autonomy.
This shows inconsistency in the Ministry of Finance's own position which rejected the inclusion of public medical institutions and trade unions in the 2% mechanism, on grounds of avoiding double public funding. Following the same logic, deductibility should not extend to public authorities under Article 24(20).
The draft amendments also replace the current deductibility of donations from taxable income with a new scheme based on turnover (5% of annual turnover). While this change may benefit some corporate donors operating in high-turnover, low-margin sectors, it removes the stimulative character of the current deduction for companies subject to the distributed profit taxation model. Since undistributed profits are taxed at 0%, the deduction no longer generates a real fiscal saving but merely ensures tax-neutral treatment.
Vague restriction on CSO expenditure opens the door to arbitrary enforcement
Concerns about significant financial and administrative burdens
A concerning provision is an amendment to Article 52(7) of the Tax Code, which introduces the concept of ‘expenditure not eligible to the statutory activity’ of a non-commercial organisation. Under the proposed text, CSOs that incur such expenditure would be required to calculate and pay income tax at the 15% rate on the amounts concerned. Currently non-commercial organisations are exempt from paying income tax, provided that their activities and use of income are consistent with their statutory purposes and comply with the applicable legal requirements.
The problem is that the term ‘not eligible expenditure’ is defined nowhere. The new Article 23, which defines non-eligible expenditure is drafted for commercial entities and defines them as personal, family, or employee benefit expenses. If applied to CSOs it provides controversial results: grants to individuals, social assistance, scholarships and direct beneficiary support - the core activity of many CSOs - could be reclassified as ‘benefits to natural persons’ and be taxed. In the absence of objective criteria, tax inspectors become the sole arbiters of whether a given expenditure ‘is eligible’ to a statutory mission. This creates a risk of non-uniform and potentially selective enforcement.
Concerns about the right to privacy
Additionally, Article 92(4²) requires legal entities, including CSOs, to report the identity of any individual receiving monetary or non-monetary benefits exceeding approximately 525 EUR to the State Tax Service. For CSOs that award scholarships, grants, prizes or social support to individuals, this creates a significant administrative burden. It also raises concerns about the privacy and personal data protection of beneficiaries, particularly vulnerable groups such as social assistance recipients or whistleblowers. The law does not clarify how this requirement interacts with obligations under the GDPR framework, to which Moldova is aligned as part of its EU accession process.
What CSOs are demanding
The NGO Council submitted an advisory opinion calling on the Ministry of Finance to:
- Remove or rewrite Article 52(7) to introduce a legally defined, objective standard of eligibility for CSO expenditure, developed in consultation with civil society, that explicitly excludes core operational costs and applies a test of reasonable necessity for the statutory mission.
- Increase the percentage designation rate from 2% to 3.5% for natural persons, to structurally offset the impact of the income tax rate reduction and maintain the trajectory of growth in civil society financing, or alternatively Extend the percentage designation mechanism to legal entities, allowing them to allocate 2% of their income tax (at the 15% rate under the proposed reform).
- Reintroduce a genuine fiscal incentive for philanthropy, such as a tax credit applicable to the 15% rate on distributed profit, for donations to non-commercial organisations; and differentiate the fiscal treatment of donations to independent CSOs from those directed to publicly funded entities.
- Transpose EU Payment Services Directive 2015/2366 to enable SMS-based charitable donations, and introduce a VAT exemption for such donations.
- Continue structured consultations with civil society before finalising the draft, including a dedicated technical discussion on the reform's impact on non-commercial organisations.
The Ministry of Finance’s own strategic commitments, including those set out in the National Programme for the Development of Civil Society Organisations 2024–2027, explicitly aim to strengthen the financial sustainability of CSOs. The proposed Fiscal Policy for 2027, however, appears to run counter to these commitments. It risks weakening the effectiveness of the percentage designation mechanism, creates conditions for potentially arbitrary enforcement under ‘non-eligible expenditure’ provisions, and does not introduce meaningful incentives for philanthropic activity.
While these measures do not appear to be intentionally directed against CSOs, they suggest insufficient consideration of the sector’s financial sustainability needs. It is therefore expected that arguments raised during the public consultation process will contribute to the revision and refinement of the proposed measures, ensuring better alignment with the Government’s own strategic objectives and commitments toward civil society development.