Tax on special constructions, significant adverse impact on business environment

FIC, RBL and AOAR underline this new tax would cause distortions in the Romanian business environment, in terms of country’s attractiveness to investment and economic competitiveness.

The introduction of the tax on special constructions in its current form, will have a powerful negative impact on the business environment, the Foreign Investors Council (FIC), together with the Romanian Business Leaders (RBL) and the Businessmen’s Association of Romania (AOAR) emphasizes yesterday this message during a round table with media representatives, whose topic was the construction tax and its implementation mechanism in the current economic context.
“The introduction of the tax on special constructions, as stipulated in the Governmental Ordinance, will create major economic distortions, all the more so given that only few days remain ahead of the tax’s reporting and payment deadline and there are still numerous unclear issues regarding its implementation. The fact that the implementation method itself is likely to cause major drawbacks in the economy and leave room for abusive interpretation by the tax authorities is another problem. Imagine a company with old fully depreciated installations which are not written off or used by the company, yet the entity must pay 1.5 percent of their gross value. I personally believe this situation makes no economic sense and yet it is a fact”, FIC President Mihai Bogza said.
In his turn, FIC Board member Daniel Anghel stated that, as early as the end of 2013 the investors sent their message to the Romanian tax authorities, namely that the implementation of this tax will have a significant negative impact on the companies from the state and private sectors which own special constructions, and implicitly on entities operating in sectors that require major and constant investment programmes aimed at upgrading the current infrastructure, e.g. production/manufacturing, transport and distribution of utilities, agriculture, telecom and energy.
In order to clearly show the impact of the construction tax, the business environment performed its own impact analysis, whose results have been forwarded to the tax authorities to warn about the major repercussions the implementation of this tax would have.
“A number of 38 companies operating in industries such as telecom, construction materials, energy, transport and logistics, production of alcoholic beverages and pharmaceuticals have contributed significant input to the impact analysis. The result of the analysis indicated an aggregate construction tax of RON 1.1 billion, which makes me think seriously about a much more drastic potential impact across the entire economy, which is very likely to exceed the tax authorities’ estimate of RON 1.5 billion, out of which only RON 500 million represent collected tax”, Daniel Anghel also said.
At the same time, during previous discussions with the officials, the construction tax’s deficiencies were presented and debated upon, with focus on the applicable tax rate, assets falling with in the scope of the tax and the taxable base.“
No distinction included
Assets subject to the construction tax have a long useful life, ranging between 10 and 60 years, while the tax rate is very high; therefore, one can infer that a taxpayer will be paying between 15 percent and 90 percent of the total value of such assets, which is excessive and indicative of the failure by those who initiated this item of legislation to understand the medium and long – term impact of this tax.
Moreover, there is no distinction included as to the taxable base between the assets in operation, those which are temporarily inactive and idle assets. It should be noted that assets whose discarding is approved are no longer operational, they can no longer generate economic benefits, yet the tax will be due and paid by taxpayers,” Daniel Anghel said.
At the end of the proceedings, Serban Toader, FIC Board member, wanted to highlight the stringent need for active cooperation between the authorities and the business environment, on all major changes in the field of taxation.
“The introduction of this tax without the prior consultation of the business environment and without an impact study conducted in advance adversely affects the companies which have invested in Romania, thus questioning the very viability of each business. We do understand the budget constraints, but we reiterate our availability for intensified dialogue with the competent authorities in order to see the impact of this tax in its current form,” Serban Toader added.
In conclusion, the FIC, together with RBL and AOAR, believe that the optimum solution to staying within the agreed targets as assumed by Romania before the international financing bodies is the implementation of measures aimed at streamlining tax collection and reducing tax evasion, rather than excessively taxing law-abiding compliant taxpayers.

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