Government meeting on amendments to the Tax Code, officially postponed for the second time

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The Government’s meeting  on amendments to the Fiscal Code was officially postponed for the second time.

Prime Minister Mihai Tudose announced on Monday that the government meeting will be postponed and will take place on Wednesday “as usual”.

However, Tudose announced that  “there is a possibility” that the amendments to the Fiscal Code should not be discussed in the Government meeting scheduled for Wednesday.

Asked if the transfer of contributions from the employer to the employee will be discussed at the Executive meeting on Wednesday, the prime minister said: “It may not be Wednesday”.

 

Heated debates on draft ordinance amending Fiscal Code. Gov’t meeting to adopt new fiscal stipulations, postponed. Economic and Social Council issues negative report on draft ordinance amending Fiscal Code

 

The draft government ordinance amending the Fiscal Code has received a negative report from the Economic and Social Council (ESC), a consultative body of the Romanian Parliament and Government, Dumitru Coarna, president of the National Union of Police Officers and Contractual Personnel and member of the ESC, announced on Friday.

In fact, the Government’s extraordinary meeting for the adoption of the new fiscal stipulations, scheduled on Friday, at 2 p.m., was postponed for Monday. The measures announced by the Government are challenged by both the employers’ associations and the unions. President Klaus Iohannis also criticised the Government on this topic.

“If we are talking about a balanced and sane Government, it should pay heed, even if the lawmaker states we are talking about a non-binding report. A balanced and sane Government that wants what’s good for the people should pay heed, because arithmetic does not engage in politics and it’s clear that this package, with the transfer of contributions, will affect the entire Romanian labour market. (…) Of course, it is affecting both the public and the private sector, things will get out of control there,” Dumitru Coarna stated for Digi24 private broadcaster.

Coarna considers that the Government’s only legal lever is to hike the gross minimum salary.

Last week, Finance Minister Ionut Misa presented the new fiscal measures concerning the taxation of salaries, announcing that employers will pay “a labour insurance contribution” of 2.25 percent, which will cover the risk of unemployment, accidents, medical leave, salary arrears.

Misa talked about the lowering of the income tax from 16 to 10 percent for salary incomes and incomes from some pensions, from rent, interest, agricultural activities.

“Thus, today we have 4.85 million employees who will pay a lower tax on salary incomes. There are 10 million Romanians who have bank deposits and who will thus pay a lower tax on interest, there are more than 250,000 pensioners with pensions higher than RON 2,000 who will pay, after this modification, a reduced tax on the sum that surpasses this RON 2,000 threshold; there are more than 500,000 citizens who will pay a lower tax on income from independent activities or copyright, including a great part of the journalists. All Romanians who leased out a house, a plot of land or other goods will also pay a lowered tax on the rent collected. Likewise, all Romanians and companies that engage in agricultural activities will pay a lowered tax of 10 percent on the income registered,” the Finance Minister stated.

At the same time, he pointed out that personal deductions for Romanians earning low salaries will grow by 60 percent: “Thus, for those on the minimum salary, the sum exempted from taxation will grow from RON 300 to RON 510, and in the case of those who have children or other persons in their care, a sum of RON 160 per child, up from the current RON 100, will be added.”

Ionut Misa also talked about the lowering of social contributions and their transfer to employees, stating that they are lowered by two percentage points, from 39.5 to 37.25 percent.

“Of the total contributions of 22.75 percent paid by the company, 20 percentage points are transferred to the employee. Of the total gross salary, 35 percent will be contributions paid by the employer on behalf of the employee. (…) The contributions remaining on the shoulders of the employer, namely 2.75 percent, will likewise drop to 2.25 percent and will cover the risks of unemployment, accidents, medical leave, salary arrears. These will be included in a single contribution, which will be called the labour insurance contribution,” the minister stated.

Misa added that another simplification has to do with the reduction of the number of contributions currently paid by the employee and the employer, from 9 to 3: the contribution for pension paid by the employee, the contribution for health insurance paid for the employee, the labour insurance contribution paid by the employer.

Those engaging in independent activities will no longer pay social contributions calculated at the level of the incomes registered but at the level of the minimum salary. In what concerns legal persons, Misa pointed out that for 450,000 companies whose turnovers fall under EUR 1 million a 1 percent turnover tax will be introduced, in contrast to the 16 percent profit tax.

“Law-abiding companies will no longer have to suffer because of those that engage in tax evasion. Economic agents will no longer be criminally probed in case of fraud on the VAT chain unless there is material evidence that the said economic agent came into contact with tax-dodging companies,” reads another measure presented by Ionut Misa.

 

PSD’s Dragnea: There is no reason to stop adopting the tax measures

 

Social Democratic Party (PSD) leader Liviu Dragnea on Friday stated that he could find no reason for stopping the adoption of the tax measures announced by the Government, while adding that the head of state, Klaus Iohannis, did not criticize these measures, but only tried to present an analysis.

“I didn’t take it as criticism, but as an attempt to present an analysis, which he later said that, in fact, it wasn’t his analysis. So that I personally don’t see any reason to stop the adoption of the respective tax measures, absolutely none, for these are measures that will only do good,” said Dragnea at the Parliament Palace, when asked what was his opinion related to President Iohannis criticizing the tax measures that the Government is about to adopt.

According to Dragnea, the ruling coalition had discussions with the representatives of the business environment, of both very large and small companies, and these companies are “not disturbed” by the announced tax measures.

Asked for his comment on the President’s statement that the salaries will grow very little, the PSD leader said: “Until recently they used to say that they are going to decrease in fact. And then yesterday, for I didn’t take that as criticism, the President said he supported our measures. Until not long ago they said that the employees will in fact have their salaries decreased and now they are saying that they will grow. Yes, the net salary will grow, for this is a good measure and I always said that the employer won’t pay more, the employee won’t get less, but, on the contrary, he will get more money, and also his social contributions will be higher and the business environment will be simplified significantly.”

 

“Employers not paying employees’ contributions are guilty of criminal offence”

The Social Democratic leader added that the employers who will not pay their employees’ contributions after the coming into force of the emergency ordinance on the transfer of these contributions on the shoulders of the employees will be guilty of criminal offence. The Social Democratic leader claimed that this will be stipulated in the ordinance that the Government will adopt or, if not there, then in a subsequent law.

“You’ve touched on a very important subject, which hasn’t been discussed until now. And maybe this issue generates so much scandal. All contributions will be stopped at the source. If they’re not paid, that means criminal offence. That means we’ll have the guarantee that all contributions will be paid down to the last penny,” Liviu Dragnea said when asked by journalist what will happen if the employer does not pay the contributions on behalf of the employee.

The PSD leader pointed out that the provisions qualifying the non-payment of contributions as a criminal offence will be included in the ordinance that the Government is due to adopt or, if not there, then in a law passed by Parliament.

“They will be in the ordinance or in Parliament. Possibly in the ordinance. They will approve [it] today, I don’t know its final form, but the principle is discussed and accepted within the coalition,” Dragnea explained.

 

Orban: Tudose and Misa should resign immediately. They lied that fiscal measures have the social partners’ greenlight 

 

National Liberal Party (PNL) President Ludovic Orban claims that Prime Minister Mihai Tudose and Finance Minister Misa should immediately resign because they lied when they said they have the social partners’ consent for the announced fiscal measures.

“Prime Minister Mihai Tudose and the Finance Minister must leave office immediately because they lied that they have the social partners’ consent for the announced changes. Honest Romanians and the honest businessmen in this country can no longer take the fiscal aberrations announced each day by the Dragnea-Tudose-Misa hateful trio,” the PNL leader states in a press release.

Ludovic Orban claims that “people keep hearing all day long all kinds of fiscal nonsense that solves none of the problems in Romania today and which, on the contrary, serves only to compromise Romania’s development in the medium and long term.”

“PSD’s chaotic governance has thrown the country into fiscal pell-mell that managed to dissatisfy everyone – employees, employers, unions, employers’ associations and in general any commonsensical person who does not understand who stands to gain from this whole fuss. How incapable or stupid could you be to destroy all the advantages of an economic growth and to blow up all of the country’s budget balances so as to achieve, in the end, a rare counter-performance, that of lowering the Romanians’ living standards via price hikes and higher taxes during a period of economic growth?” Ludovic Orban added.

The PNL President is asking PSD and ALDE to take their hands off the economy.

“If you want thousands of companies not to disappear, if you want not to destroy hundreds of thousands of jobs, if you don’t want the incomes of thousands of private sector employees to drop, if we still want investments and economic development in Romania: postpone forever, till kingdom come, the transfer of social contributions from the employer to the employee; lower the taxation of labour by lowering social contributions from 39.25 to 35 percent; introduce the possibility of opting for the 1 percent tax on turnover up to one million euro; lower the income tax from 16 to 10 percent; give up the split payment of VAT; adopt a predictable, reasonable and sustainable mechanism for the hiking of the minimum salary; responsibly enforce the unified salary law in the public sector,” Orban asks the members of the Government.

“The National Liberal Party is by the side of this country’s employees and businessmen who are affected and aggressed by the fiscal changes announced by the Dragnea-Tudose Government. My PNL colleagues and I will attack with all our power any of this Government’s attacks on the interests of the business environment and of honest taxpaying citizens, by resorting to measures ranging from parliamentary opposition, challenges at the Constitutional Court and Ombudsman, to petitions and street protests. Gentlemen from PSD and ALDE, you’re not fooling anyone, stop the fiscal experiments conducted at the expense of our money!” Ludovic Orban states.

 

Citu: There is still hope PM will file Fiscal Code amendments under “discussed and forgotten”

 

National Liberal Party (PNL) Vice President Florin Citu stated on Friday that following the postponement of the Government meeting there is still hope that Premier Mihai Tudose will file the amendments to the Fiscal Code under the heading of things “discussed and forgotten.”

“This morning I presented Tudose’s dilemma: if he transfers the contributions, he’ll have people in the streets; if he doesn’t, he can’t implement the unified salary law. I also gave him the solution: he should not adopt these measures and should spread out the salary hikes of 2018. For the time being, he has understood and has postponed the amendments to the Fiscal Code. There is still hope he will file them under ‘discussed and forgotten.’ Otherwise everyone will be in the streets and only they will be in the Government’s buildings,” the PNL Vice President stated.

He added that the postponement of the Government meeting is “only a temporary victory.”

 

UDMR’s Kelemen Hunor on tax reform: Also dissatisfied, no idea what Gov’t actually intends to do

 

Chairman of the Hungarian Democratic Union of Romania (UDMR) Kelemen Hunor on Friday told AGERPRES that the Government should provide several explanations regarding the tax reform it has initiated, in order to clarify the things that have led to dissatisfactions of late.

“Firstly, more explanations are needed because people have a hard time understanding why – I don’t know either, nor do I understand – why part of the social contributions must be transferred from employer to employee. I don’t understand what the local authorities’ strategy will be, if the income tax is cut from 16 to 10 percent. I agree with this cut and with maintaining the flat rate, but we must be extremely clear – through this move, the local authorities lose a lot of money. (…) There will be a hole in the local authorities’ budget, which is not a good thing (…) and the quota that remains with the local authorities needs to be accrued. (…) It is a burning question – who will give the money, because this means covert tax centralisation, and it is not good. (…) And the Government must firstly explain to the citizens, secondly, to the local authorities, the mayors, the locally-elected people what happens to their budgets, because now there is no such explanation. And there are many, many questions that the Government must answer and if there are no answers, then, of course people are disquieted, doubtful, they protest, they say things more or less true, but it is not their duty to guess what the Government intends to do,” Kelemen Hunor told AGERPRES.

In his opinion, taxation has been the scene of “many improvisations” in the last year and people are feeling a “certain lack of predictability and stability.”

“Without knowing (…) the rules of the game, it is difficult to take a step further, it is hard to devise a budget, hard to prepare investments, difficult to do anything in the business area. (…) That is why I believe those who ask questions, even in the form of strike, are expecting an answer, and if they receive a clarifying answer, I am convinced that most of them (…) will calm down. But I cannot give them these answers. I am also displeased because we don’t get any answers either, we don’t know what the Government actually intends to do (…) or those who conceive the tax reform (…) and we are waiting for these answers (…). I see people don’t understand what the Government wants and if they don’t understand, it means it is not the people’s fault,” Kelemen Hunor concluded at a meeting he had in Sfantu-Gheorghe with the mayors in Covasna county.

 

 

President Iohannis: I believe tax package will turn into fiscal turmoil

 

President Klaus Iohannis said on Thursday that instead of solving problems, the tax measures unveiled by the Government will complicate them.

“In my opinion, this package is not the much-heralded fiscal revolution, but I think it will rather turn into a fiscal turmoil,” Iohannis said at the Cotroceni Palace.

Regarding the switch of contributions from the employer to the employee and the cut of the income tax, the head of the state said that at first sight, these seem to be an interesting move but an in-depth look shows that “these measures actually render things more complicated instead of solving them”.

“For example, the PSD-ALDE ruling coalition say they are transferring social security contributions to the employee, but on the other hand they come up with that new solidarity tax, as they call it or something of the like, of 2.25 percent that stays in the employer’s responsibility. So, do we transfer or not? In reality we transfer only partially,” Iohannis said.

He went on to say that he did a calculation using the publicly released figures for the gross national average wage of 3,329 lei, and that the increase as a result of the measures announced by the government would be 3 lei.

“So the PSD-ALDE grand fiscal revolution brings someone who currently earns 2,335 lei an additional 3 lei. This is ridiculous. It isn’t bad that they would gain. I too want people to earn more, but PSD-ALDE’s promise that the salary would increase following the transfer of the social security contribution and the lowering of the income tax is simply false. It goes up 0.1 percent, that is by those 3 lei per gross average salary. If the PSD-ALDE policy aims or has as its utmost argument rising wages, why don’t they rise? Why is this fiscal mega flip-flopping necessary?” the head of the state inquired.

He also underscored that concerns are afoot in the economic milieu that the wages will actually drop following these measures.

The President also commented on the measure announced by the government regarding the decrease of pension scheme contributions.

“I don’t think that we will thus improve the Romanians’ pensions. The envisaged measure will implicitly result in the decrease of the pension under Pillar II, and I don’t think this is good,” Iohannis declared.

He also argued that in his opinion the measures and calculations announced by the government are actually “patchwork”.

The head of the state also pointed to the host of concerns, warnings, debates in the public space and trade union actions regarding the fiscal-budgetary framework.

“The European Commission (…) has triggered a significant deviation procedure regarding the budget deficit. (…) This means that as far as fiscal behavior is concerned, we have somewhat gone haywire, as the folk saying goes, we have lost what is called predictability and sustainability. (…) This predictability is vital for a healthy economy, just as sustainability is vital, that is, we need to have public policies and measures that allow for further growth,” Iohannis said.

 

“I urge coalition to drop this kind of tax policy generating distrust and uncertainty”

 

President Klaus Iohannis on Thursday urged the governing coalition to give up the kind of tax policy it promotes, for it generates “distrust” and “uncertainty.”

“I urge the ruling coalition, made of the Social Democratic Party and the Alliance of Democrats and Liberals, to show responsibility and give up this kind of tax policy that is generating distrust and uncertainty and doesn’t help anyone,” Iohannis said at the Cotroceni Presidential Palace.

He recommended the government and politicians to make more prudent economic decisions.

“Romania needs a policy that solves the problems today and the day after tomorrow more serious problems arise, but it needs a policy that solves the problems of Romanians for a foreseeable future, so a sustainable policy, as it is said in the specialized language. That is why I warn the political decision-making factors in the most serious manner to be careful and try to think clearly not to throw Romania and the Romanians in a sad-end fiscal adventure,” added Iohannis.

He said he had discussions with Government’s representatives but “each remained with their opinion”. The head of state mentioned he would not attend the Government meeting that will discuss the package of fiscal measures, because, under the Constitution, he has no economic prerogatives.

 

What economists say about new fiscal measures announced by Gov’t

 

The latest amendments to the Fiscal Code will affect companies whose turnovers fall below EUR 1 million, which have small profits, will put pressure on the costs, particularly in the case of companies with many employees, and will accentuate the governance platform’s sustainability problem, according to the economists consulted by News.ro.

These measures accentuate the governance platform’s sustainability problem, against the backdrop of a fall in budget revenues and a hike in budget expenditures, economist Aurelian Dochia believes.

“The latest measures are going in the direction of the governance platform that the Government observes with perseverance. Many economists, myself included, have expressed their opinion on this platform’s sustainability problem, against the backdrop in which measures are taken in what concerns both the hiking of budget expenditures and the lowering of taxation and of budget revenues. At the same time, I don’t see signs that this sustainability problem will be solved in 2018,” Dochia stated for News.ro.

The hiking of the minimum salary will force companies to rethink their salary scales, which could represent a significant problem for companies with many employees, Association of Romanian Businessmen (AOAR) Secretary General Cristian Parvan believes.

“The hiking of the minimum salary is prompting companies to do something about the entire salary scales. (…) The hiking of the minimum salary will put pressure on costs in the case of companies with many employees. Production companies already have pressure on costs, stemming from this year’s hikes in energy and fuel prices,” Parvan stated.

Moreover, the introduction of a 1 percent turnover tax for companies whose turnovers fall below EUR 1 million will represent a burden in the case of companies with small profit margins, Parvan considers.

Some fiscal measures announced by the authorities, such as the lowering of the income tax to 10 percent, have a potentially positive impact on the business environment, but there are questions marks concerning the budget sustainability of these initiatives, according to a communique released by PwC Romania.

The lowering of the income tax to 10 percent would be applied both to salary incomes and to incomes from pensions, rents, interest, agricultural activities, independent activities and copyright. Other beneficial measures consist of maintaining the social security ceiling for authorised physical persons, as well as the hiking of the personal deduction for people with low incomes, according to PwC.

“Of course, such measures are welcome, however the business environment has questions marks about the budget sustainability of such initiatives, considering the fact that, in the substantiation of this legislative package, it is said that they will generate a fall in budget revenues of up to RON 5 billion in 2018. Romania already has one of the lowest share of fiscal revenues in the GDP among EU member states, and budget revenues are disproportionately dependent on revenues from indirect taxes and fees – VAT and excises, which are, after all, taxes on consumption, hence strongly pro-cyclical,” Mihaela Mitroi, leader of PwC Romania’s Fiscal and Juridical Consultancy Department, stated.

The National Council of Romanian SMEs (CNIPMMR) disagrees with the hiking of taxation on SMEs, which the new labour insurance contribution of 2.25 percent – payable by the employer – generates, believing that the total value of this contribution hikes taxation by 0.5 percent for most SMEs and, moreover, the labour insurance contribution does not have a clear destination.

“One of the effects of this measure is that costs for the purchase/modification of new accounting software will be generated. Likewise, the business environment – and the SMEs in particular – is thrown into confusion in what concerns the predictability of tax obligations,” CNIPMMR President Florin Jianu stated in a press conference last Monday.