Business environment: CAS cut, positive impact on economy


Business environment: CAS cut, positive impact on economy

The Coalition for the Development of Romania (CDR) welcomes the measure to reduce by 5 percent the taxes paid by employer for the social security contribution due to the public pensions system, in effect as of October 1, 2014.
“The measure highlights the Government’s efforts to improve the economic climate regarding labour taxes,” say the Coalition members in a release sent to the media yesterday, along with representatives of AmCham Romania, the Association of Romanian Businessmen, Foreign Investment Council and Romanian Business Leaders.
Labour taxes are very high in Romania compared to other states in the EU. Thus, according to information in the “Paying Taxes 2014” created by the World Bank together with PwC, one can notice that the mandatory taxes and contributions paid by the employer and expressed as percentage of their profits amounts to roughly 31.5 percent in Romania. This figure places Romania in the upper half in Europe much more than other states such as Denmark (3.6 percent), the UK (10.6 percent), Norway (15.9 percent), the Netherlands (18.2 percent), Germany (21.8 percent) or Poland (26 percent).
“The taxing of labour is certainly a competitive drawback of Romania as emergent economy in relation with the systems present in most of the other member states,” CDR notes in the release. In this context, the Coalition believes that the careful adoption of the 5 percent reduction of CAS (contribution paid by employer) will set the basis for changes with positive significance for the entire economy, with the potential to generate beneficial effects both for employer through the direct reduction of amount paid and for the employee, on whom the beneficial effects will be directed influenced, by increasing their purchasing power. This measure leads to a better occupancy of the workforce, which means more revenues to the state budget.
Benefits for local employers
CDR believes the adoption of this tax measure will bring benefits for local employers no matter they are major corporations or SMBs. Virtually, CDR believes the effects on major employers but also on SMBs will be perceived at investments, increasing the available resources. As for SMS, the resources plus resulted after the adoption of this fiscal measure will be most likely directed to the increase in the staff’s wages, hiring extra people to develop the business and making investments in equipment and technology.
The effects on high taxation on labour for the employer in Romania have clear repercussions on the local business environment, reducing the demand for workforce and increasing the underground labour phenomenon. There are also imbalances at the social budgets. Thus, CDR believes that the reduction of these imbalances can be achieved through balancing the ratio between the active population and the number of employees, a ratio which is lower in Romania and disillusioning for investors. Fixing the ratio can be possible through the adoption of this tax measure which has the possibility to bring “to surface” a large number of jobs from the untaxed area, leading to higher revenues to the budget.
Although we appreciate the effects of this beneficial measure which has been long requested by the business environment in Romania, we have to mention that these effects might be cancelled by the persistence of an unpredictable environment regarding fiscal policies and by adopting taxes and fees without a previous consultation.
In conclusion, the Coalition believes that the adoption of such measures such as cutting the CAS is beneficial for developing the business environment in Romania, as long as it is not accompanied by new tax increases, but a better tax collection and lower tax evasion.

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