The emergency ordinance amending the Tax Code was adopted by the Government during its meeting on Wednesday. The legislative act stipulates the transfer of social security contributions from the employer to the employee, and the lowering of the income tax from 16 to 10 percent, a decision challenged by citizens, trade union members and mayors, the latter claiming that budget revenues will fall considerably as a result and hence their funds for investments too. The new fiscal provisions were criticised by trade unions too, but also by President Klaus Iohannis, who said that the “great fiscal revolution” is turning into “fiscal chaos” which will push Romania “into an economic and fiscal adventure with a sad ending.” Hundreds of people protested in Victory Square against the ordinance amending the Tax Code.
On the one hand, the Government presents the measures as being beneficial, encouraging and even generating opportunities for employers, but on the other hand the representatives of the business environment – entrepreneurs, analysts, consultants, leaders of employers’ associations or investors’ associations – and politicians from outside the ruling coalition reject them partially or completely, invoking major risks to macroeconomic stability.
PM Tudose: Excessive inflammation. Measures concerning the remittance of profit have inflamed some multinational companies
The Government meeting expected to adopt the emergency ordinance (OUG) on the Fiscal Code started with a 30-minute delay on Wednesday, while several hundred persons had gathered in Victory Square to protest against the measures mulled, mainly against the transfer of social security contributions from the employer to the employee.
At the start of Wednesday’s Government meeting, Premier Mihai Tudose stated that there is “an excessive inflammation” of the public opinion, claiming that the measures on the remittance of profit “inflamed some multinational companies.” Tudose added that he was informed that some bank branches gave their employees time off to take part in the protest.
“There are a number of changes to the Tax Code on the agenda and, in order not to be secretive, I am giving you a piece of my mind and the mind of some of my colleagues about the excessive inflammation of public opinion. It is not about the transfer of the payment of contributions, as there the trade unions and employers’ associations which until very late were very fine with the transfer, got inflamed after the Government wanted to introduce some very firm measures regarding the remittance of profits, by doing nothing but transposing into the Romanian legislation a European directive along with other measures that we think are worth taking so that the profit cannot be entirely deductible, so that the Government is left with some money from which to finance education, healthcare and infrastructure. Some multinationals have got inflamed, but fortunately, I understand that they have understood that it is not the case because the end will be the same,” Tudose said at the beginning of the Government meeting.
FinMin Misa on tax changes: Employees’ net income will increase, employers will not pay more
In his turn, Finance Minister Ionut Misa claimed that the emergency ordinance (OUG) amending the Tax Code contains measures included in the governance platform and “brings important benefits for the citizens and for the companies currently active in Romania.”
“The employees’ net income will increase and the employer will not pay more money into the national budget as a result of the income tax decreasing from 16 percent to 10 percent, social security contributions decreasing from 39.25 percent to 37.25 percent and the transfer of the payment of the mandatory social security contributions from employers to employees”, Finance Minister Ionut Misa said Wednesday.
“The much discussed and debated ordinance that contains amendments to the Tax Code is included in the governance program, meaning long time known changes approved by Parliament, brings important benefits to citizens and companies that operate in Romania today,” Misa said at the start of the government meeting, at the request of Prime Minister Mihai Tudose.
Misa pointed out that the first fiscal measure was to reduce the income tax from “16 to 10 percent for employees, pensioners, authorised individual traders, on income drawn from copyright and by individual businesses, on rents, on interest, annuities, prizes, agricultural activities, forestry and fish farming, as well as on income from other sources and investment, except for dividend income, where the tax remains at 5 percent.”
“At the same time, social security contributions are reduced from 39.25 percent to 37.25 percent, so there is a two-percent cut in social contributions. In correlation with these two measures, there is a third measure aimed at transferring to employees the payment of mandatory social security contributions incumbent on employers in the case of wage and related income. I would like to mention that the effect of all these three cumulated measures will be an increase in the employees’ net income without the employers paying more money into the national budget,” Misa explained.
“Amending the Tax Code will reduce contributions from nine to three”
The amendments to the Tax Code are also designed to reduce the number of social security contributions from the nine to the three, namely the pension contributions (CAS) the healthcare contributions (CASS) and the employment insurance contribution, Finance Minister Ionut Misa also said Wednesday.
“The ordinance aims to reduce the number of social security contributions from a current nine to three, leaving in place only CAS, CASS and the employment insurance contribution. Undoubtedly, this measure will reduce the bureaucracy from a fiscal point of view, while also being a measure that will simplify tax management very much and also reduce employment costs sustained by employers,” Misa said at the start of a government meeting where he unveiled the amendments to the Tax Code.
He mentioned as another “beneficial measure” for employees, “the increase in the gross monthly pay against which personal tax deductions are granted.”
“There is an increase from a current 1,500 lei to 1,950 lei, in the future, in the cap on fixed-amount deductions according to the number of persons in care. Another decrease will be from a current 3,000 lei to 3,600 lei in the future in the cap on bracketed deductions. The measure is taken to support the currently low-income employees, while being a form of assistance, given that a certain amount of the income is deducted from the taxable base. Under this measure, deductions are granted also to persons without anyone under their care, and this is a deduction of 510 lei, while wage earners having more persons under their care will qualify for deductions ranging from 670 lei to 1,340 lei, depending on the number of persons in care,” said Misa.
The minister added that the measure “reduces the tax burden on the workforce, fostering employment and helping increase legal employment.”
“The essence of amendments aims at rules against tax avoidance practices of multinational companies”
The essence of the ordinance amending the Tax Code is represented by the transposition of the European Directive No. 2016/1164 on laying down rules against tax avoidance practices of the multinational companies,” Finance Minister Ionut Misa stated.
“The measure concerns the transposition of Directive 1164 which establishes norms against tax avoidance practices that have direct incidence on the internal market. Of course, the measure is challenged because it seeks to limit the deductibility of interest between multinational companies in Romania and their parent companies abroad, because this measure seeks to prevent the remittance of profits from Romania to other countries, and because this measure seeks to hike the profit in Romania and implicitly the profit tax that these companies are paying in Romania. Hence, it is obviously an extremely beneficial measure for the Romanian economic environment, for the state budget and, implicitly, for citizens, who will benefit from the growth of the sums allocated to and collected from the state budget by several hospitals, expressways, benefits in their favour. It’s a measure that, as I noted, is neglected by the media, but in my personal opinion it is in fact the essence of this ordinance and represents the element that wishes to draw the attention of Romanians who, I’m convinced, are sufficiently intelligent to see the difference, to not be tricked into focusing on the transfer of contributions and to understand that the opposition to this ordinance has more to do with the remittance of these profits abroad and with the desire to prevent the possibility that the Romanian state might tax these companies,” the Finance Minister explained during the Gov’t sitting.
He added that he was “the first” to initiate controls in the banking system conducted by the National Agency for Fiscal Administration (ANAF) at the “big taxpayers.”
The Premier intervened after Misa finished his statement.
“I appreciated, with the necessary quotation marks, a protest staged by Romanians backed by the [company] leadership, who wanted expressways, while the company was remitting the profit. Superb! It won’t work anymore,” Tudose said, referring to the protest staged by 10,000 employees of Dacia Mioveni.
“Under new amendments, tax authorities will be able to refuse VAT deduction”
The amendments to the Tax Code have special provisions for the instances in which the tax authorities may refuse to grant Valued Added Tax (VAT) deductions in order to avoid possible abuses from them, Finance Minister Ionut Misa also told the government meeting on Wednesday.
“There are explicit provisions for the instances in which the tax authorities may refuse to grant Valued Added Tax (VAT) deductions, as resulting from the case law of the EU Court of Justice. The measure is designed to clarify the situations where tax authorities can refuse to grant VAT deductions in order to avoid possible abuses on the part of the authorities (…) I think it is an extremely important measure to the Romanian business environment, a long-awaited measure. There has been a lot of talk in the public and business environment regarding the non-granting of VAT deductions for chain purchases. In fact, an honest and fair economic operator who has acquired an asset or contracted services and made a payment for these services transparently has been unable to deduct the VAT because a fourth or a fifth supplier in the chain did not pay the VAT to the state. Such a situation generated by the tax authority will be virtually impossible in the future,” said Misa.
He added that another measure targets excise duties and special taxes.
“This is also about the introduction of a complementary penalty in the form of seizure of containers and means of transport used for the transport and storage of excisable products not properly labelled or marked or with false markings. The measure is extremely necessary to prevent and combat tax evasion and, at the same time, to ensure a fair competitive environment,” Misa said.
Labour Minister: Decision on minimum salary to be presented at a later Gov’t meeting
Labour Minister Olguta Vasilescu announced that the Government Decision on the hiking of the gross minimum salary will not be adopted during Wednesday’s Government meeting because it is undergoing public consultations and the Economic and Social Council is yet to issue its report.
“Last week we had a first reading of the government decision related to the minimum wage per economy, which will be presented at a later meeting for now the draft is facing a decisional transparency stage, published on the site of the Labour Ministry, and we also have the approval of the Economic and Social Council,” stated Vasilescu, in the beginning of the Government meeting on Wednesday.
According to the Labour Minister there is no delay in what this Government decision is concerned.
She also stated that the Revisal computer system is prepared to support the modification of the individual labour agreements.
At the Government meeting of October 26, Lia Olguta Vasilescu announced that the minimum salary per economy will grow to 1,900 lei as of January 1 2018.
Gov’t discusses ordinance hiking pension point to 1,100 lei
Vasilescu announced that on Wednesday the Government was set to discuss an emergency ordinance hiking the pension point to 1,100 lei and the minimum guaranteed pension to 640 lei starting on 1 July 2018.
“We have the emergency ordinance on the table today, after we had its first reading last week, and it’s referring to the increase of the pension point to 1,100 lei and of the minimum guaranteed pension to 640 lei starting on July 1, and also to an the increase in the child allowance, to a minimum allowance of 1,250 lei, as of 1 January 2018, and also to keeping the Pillar 2 quantum in 2018 the same as it was in 2017,” said the Minister of Labour, at the beginning of the Government meeting.
After Finance Minister Ionut Misa and Labour Minister Olguta Vasilescu presented the measures that the Government will adopt, Premier Mihai Tudose said he was informed that some bank branches gave their employees time off in order to take part in the protest.
“Minister Misa, congratulations for your speech. I’ve just found out that some bank branches have given their employees time off in order to be able to take part in the protest outside. So, you are on the right track. If the banks are nervous, I congratulate you for this. Maybe they’ll pay taxes too,” the Premier added.
At the Premier’s request, Ionut Misa announced that after the Government meeting he will organise a press conference at the Finance Ministry.
“And I’m asking you to offer information about those who have not paid a single RON in taxes so far,” the Premier told Misa.
The Government meeting had been scheduled for 3 p.m. at first, but was then pushed forward to 1 p.m., something that also resulted in the rescheduling of the protest outside the Government building, a protest whose organisers called on the employees of all large companies to attend, companies that were asked to give them time off, by rotation, so as to be able to take part in the protest.
Hossu: We’ll notify Ombudsman about proposed amendments to Fiscal Code
Bogdan Hossu, leader of the ‘Cartel Alfa’ Union Confederation, stated on Wednesday that he intends to notify the Ombudsman about the proposed amendments to the Tax Code, in the hope that the Ombudsman would in turn notify the Constitutional Court.
“We’ll move our protest there, because we hope to convince the Ombudsman to forward [it] to the Constitutional Court, for analysis of our notifications. If it remains in Parliament, the latter will pass the state budget, under emergency procedure, which will probably be approved on Monday or Tuesday next week. The ordinance will have to go through Parliament too, and it will do so during next spring’s session,” Hossu stated at the protest in Victory Square, where approximately 200 persons protested against the proposed amendments to the Fiscal Code.
If MPs challenge the law at the Constitutional Court (CCR) and the Court rules that the law is unconstitutional, this will lead to “a national economic and social disaster.”
Protesters: November 8th is “Black Wednesday” for Romania’s economy
The protesters have created a Facebook page, stating that November 8th is the “Black Wednesday” for Romania’s economy.
“In order to patch up a budget that it was unable to manage, the PSD-ALDE Government is capable of destroying Romania’s free economy. The amendments to the Fiscal Code that the Tudose Cabinet plans to adopt via yet another democratic backsliding (Emergency Ordinance) will bring chaos to business plans and salary scales. In this way, the government members’ irresponsibility is destroying any chance for predictable and stable economy in Romania,” the organisers of the protest point out.
The people who took part in the protest shouted: “PSD, the red plague,” “Down, down, down with the lying Government” and “Go to jail.” They carried placards, flags and blowhorns. Some of them were accompanied by their children.
The protesters fear that the Government’s new fiscal measures will affect them.
“We will all be affected by these measures, one way or another. There isn’t only one category that will be affected. We will all be affected by these modifications,” Carmen Doana, one of the protesters, stated.
“I took to the streets because of the transfer of taxes they plan to carry out, because of the contempt seen so far. They want to legalise theft again, just like they tried last winter. These changes to the Fiscal Code will affect us because they leave it up to the employer whether to offer that surplus of money from which to pay our taxes,” Stefan Marinescu, a medical doctor who joined the Victory Square protest while on break, said.
“I’m dissatisfied with all the measures of the ruling coalition. Based on all the calculations of specialists, incomes will go down, not up,” protester Serban Adrian explained his reasons for being there.
“I came here because I disagree with what they want to do. It’s absolutely absurd to transfer taxes to the employee. Salaries will drop. It’s not a good thing. Everything happening now is not ok. Not to mention ROBOR, which went up and is affecting me,” Gina, an IT worker, told Mediafax.
PNL to table censure motion against Tudose Gov’t, organize street protests due to the new fiscal measures
National Liberal Party (PNL) announced on Wednesday that it will initiate a censure motion and will organize street protests, due to the fiscal measures adopted by the Government. PNL Chairman Ludovic Orban says that for the censure motion, “the support of every political party and every parliamentarian” will be requested.
PNL would also call on the Ombudsman to challenge with the Constitutional Court the ordinance amending the Tax Code, if and when it is issued.
He also announced that PNL will “resort to all forms of legal and constitutional protests to prevent the entry into force of these tax aberrations that threaten to hurt the Romanian economy, including marches, rallies and all other possible forms of protest.”
“We are also in tune with all those who defend their wages, defend their pensions, defend their future, defend their work and earnest income, and who do not accept to be robbed by this government, who is coveting people’s money to fill up their piggybanks,” added Orban.
The Liberals are thus protesting against the measures that the Tudose Government adopted on Wednesday afternoon, calling them the biggest lie in the electoral programme of the ruling coalition made up of the Social Democratic Party (PSD) and the Alliance of Liberals and Democrats (ALDE), and Romanians have become aware of that, said PNL spokesman Ionel Danca. He also said that what the Government is doing is “a mockery” and a “fiscal mess”.
Danca also lashed out at what he called “another attack on the Romanians’ money – namely the modification of contributions to the pension pillar II.”
In turn, senator Florin Citu, PNL deputy chairman, believes that today, when the government met to discuss tax changes, is a bleak day for Romania. In addition, Citu added that “the genocide against Romanian economy is complete”, that “PSD started a war against Romanians”, following “to take Romania out of EU”.
Ludovic Orban said that the manner by which the Government works “necessarily requires the submission of the censure motion”.
“We will request the support of every political party and every parliamentarian”, the PNL Chairman stated.
He announced that Liberals will protest in all the ways against the measures adopted by the Government, including by marches and rallies.
“We are solidary with all those who protect their work, salary, future, not accepting to be robbed by this Government”, Orban added.
According to the Constitution, Deputies’ Chamber and the Senate, in a joint session, can withdraw their trust in the Government by adopting a censure motion with the majority vote of the deputies and senators. The censure motion can be initiated by at least a quarter of the total number of deputies and senators and it has to be communicated to the Government on the date of submission. The censure motion has to be debated after 3 days since it was presented in the joint session of the two Chambers. If the censure motion is rejected, deputies and senators who signed it cannot initiate, in the same session, a new censure motion, unless the Government assumes responsibility in Parliament.
FinMin Misa: MNCs will have to pay taxes in Romania just like they do in other countries
The measures amending the Tax Code are beneficial for both companies and citizens, considering that they will lead to a drop in the share of social security contributions – from 39.25 to 37.25 percent –, to a drop in the number of contributions payable by the employer – from 9 to 3 –, and to the reduction of red tape, that the employer will be held criminally accountable in case he retains social contributions from the employee’s gross salary but does not pay them to the state, and that multinational companies will have to pay taxes in Romania just like they do in other countries, Finance Minister Ionut Misa stated in a press conference held at the end of the Government meeting.
The minister had a message for the multinational companies active in Romania, warning them that they will have to pay taxes just like they do in other countries.
“I’m telling the multinational companies that are trying to avoid the payment of taxes that they will have to respect Romania and pay these taxes just like they do in other countries,” Misa stated.
He emphasised that these measures are beneficial for both citizens and companies.
“These measures are beneficial for both citizens and companies. (…) A lowering of social security contributions from 39.25 percent today to 37.25 starting in 2018 is achieved,” Misa stated.
The Finance Minister emphasised that the number of social security contributions payable by the employer will drop from 9 to 3 in 2018. Misa said the contributions for Pension Pillar I will rise from RON 706 to RON 849 in the case of an average salary. Moreover, the introduction of a 1 percent turnover tax on companies with annual turnovers lower than EUR 1 million will reduce red tape.
“The switch from a 16 percent income tax to a turnover tax of 1 percent will considerably simplify the accounting side, that is why we’ve extended the measure to companies whose annual turnovers are lower than EUR 1 million,” Misa said.
At the same time, the minister warned that a new stipulation will be introduced, according to which the employer will be held criminally accountable in case he retains the social security contributions from the employee’s gross salary but does not pay them to the state.
Simulations show that the gross average salary must be hiked by 16.6 percent for the value of the net salary to remain unchanged, Deloitte Romania announced on Wednesday.
“Simulations show that a 16.6 percent hike of the gross value of the salary is called for – if we take the gross average salary of RON 3,131 as reference point – in order to maintain unchanged the net sum that an employee receives now,” Deloitte Romania CEO Radu Derscariu points out in a communique.
What does the emergency ordinance amending the Tax Code stipulate
The legislative act on the Tax Code stipulates the transfer of social security contributions from the employer to the employee, a measure challenged by unions, as well as the lowering of the income tax from 16 to 10 percent, a decision challenged by mayors, who claim that budget revenues will thus drop substantially and so would the investment funds as a result.
The announced measures include the lowering of the income tax from 16 to 10 percent in the case of incomes from salaries, some pensions, rents, interest and agricultural activities; the introduction of a “labour insurance contribution” of 2.25 percent, payable by employers; the hiking of the monthly gross salary level on whose basis the personal deduction is calculated; the lowering of the mandatory social security contributions’ total share from 39.25 to 37.25 percent; the lowering of the number of social security contributions from 6 to 3. Likewise, the gross minimum salary will grow from RON 1,450 to RON 1,900 starting on 1 January 2018.
Another measure refers to the hiking of the monthly gross salary level on whose basis the personal deduction is calculated: from RON 1,500 (at present) to RON 1,950 – the limit up to which the deductions are offered in fixed sum, in relation to the number of persons in care; from RON 3,000 (at present) to RON 3,600 – the maximum limit up to which the deductions are offered in a degressive manner. No personal deductions are offered to employees registering monthly gross salary incomes in excess of RON 3,600.
At the same time, the Government is considering hiking the number of micro-enterprises that will pay a one percent revenue tax, by hiking the taxation threshold from EUR 500,000 to EUR 1 million. At present, SMEs with turnovers of EUR 500,000 to EUR 1 million pay a profit tax of 16 percent.
Gov’t release: Amendments to Tax Code, including taxes on SMEs, income tax, social security contributions
The Government on Wednesday said in a press statement that in the area of corporate taxation, the emergency ordinance adopted at its meeting on Wednesday revises taxes on microenterprises, which would be subjected to a 1-percent tax on real revenues, and so would do the SMEs deriving revenues of between 500,000 euros and 1,000,000 euros currently paying a 16-percent profit tax.
The ordinance is said to translate into Romania’s legislation the provisions of Directive 2016/1164/ EU combatting tax base erosion and profit shifting.
In the area of mandatory social security contributions, the amendments envisage both a cut in their aggregate shares by two percentage points, from 39.25 percent to 37.25 percent, as well as the reduction of the social security contributions from the nine to three, the pension contributions (CAS) paid for the employees; the healthcare contributions (CASS) paid for the employees, and the employment insurance contribution, paid for by employers.
The transfer of the tax burden on the mandatory social security contributions payable by employers for the employees in case of wage income and similar income is as follows: “CAS and CASS shall be due by individuals, namely employees, including in the case of individual full or part-time employment contracts on which CAS and CASS due may not be less than the level of the social security contributions related to the gross minimum wage in force in the month for which they are due, adjusted for the number of working days in the month in which the contract was active.”
An additional CAS rate of 4 percent and 8 percent, respectively, would be set for hard working conditions, special conditions or other work conditions defined by the law.
“Individuals whose legal capacity is employees under an obligation to pay social security contributions shall pay healthcare contributions (CASS) of 10 percent,” the statement says.
An employment insurance contribution is introduced to the tune of 2.25 percent of the gross pay incumbent on employers.
In the area of income tax, the ordinance provides for the reduction of the flat income tax from 16 percent to 10 percent.
There is an increase from a current 1,500 lei to 1,950 lei, in the future, in the cap on fixed-amount deductions according to the number of persons in care. Another decrease will be from a current 3,000 lei to 3,600 lei in the future in the cap on bracketed deductions.
The employees earning more than 3,600 lei in gross monthly wages would not qualify for personal deductions.