“It is expected to collect EUR 81 M from the lump tax, another EUR 97 M from the taxation of the reserves from reevaluation, to which EUR 123 M from the non-deductibility of VAT for cars and the failure to settle the fuel costs add. Thus… EUR 302 M more to the state budget. Is this a relevant amount at the level of the Romanian state, as I said, even for a period of crisis?”
The enforcement of the lump tax as of May 1 sustained by Minister Gheorghe Pogea has stirred and is stirring passionate reactions of the employers’ associations, of the small entrepreneurs and of the political analysts. Some of the latter consider that the tax is welcome but applied deficiently, while others consider it a mistake from the beginning. Minister Pogea considers that the state will win, while various consultants and analysts voice their doubts openly, emphasizing the risks involved by this small tax, but big enough for the small entrepreneurs with family companies, etc.
In April alone, in Bucharest, 3,143 firms have suspended their activity, 24 times more than in the past year in the same period, while the incorporation of new firms dropped from over 13,000 to 8,582.
It is anticipated that over 40,000 family companies will be affected, preferring to suspend the firm or to turn it, when it is possible, into an “authorized natural person” (PFA) – in which case they would pay only the 16 per cent profit tax. But even this solution is not a perfect one, being necessary to fulfill certain conditions and to pay in advance the tax subject to an evaluation based on the previous year, which is regularized upward or downward subject to the real results from the present year.
But the discontent of the owners is directly related with the lump tax, which is calculated subject to the revenues of the past year. And 2009 is a year in which the economic crisis is felt ever more strongly and cannot be compared to the relative boom from the first half of 2008.
A small tax, but also the adjacent measures seem to affect the internal economic activity more than anticipated initially. If in a difficult period like the present one we find methods to limit the private activity, things will not be good for the state sector either. If we watch the recent political and social events, connected with the discontent of the unions, the strike of the educational staff, we notice the complete indifference of the civil servants towards the present economic realities. Actually, the taxpayers are precisely the private firms, and the decrease of their activity conducts to the fall of the revenues to the budget and implicitly of the sources of funds for investments and the capacity to pay the civil servants’ salaries. But, it seems that the pressure and the flow are regarded conversely. The fear of the Government about the protest actions, the street manifestations of the unions, the rousing of the spirits one month prior to the EP elections, makes it more concessive with those who use rather than with those who produce.
Under these circumstances it is not known whether the state will win or lose. The main risks are the rise of unemployment and the fiscal behaviour. The closing of the firms or their reduced activity conducts to layoffs. The new unemployed will receive the unemployment aid assured by … the state. Thus, what is taken away with one hand is given with the other. On another hand, the black market could grow in spite of the efforts to bring up the economic activities. One of the leaders of the employers’ associations was saying recently that the state budget will suffer losses because the rulers encourage mechanisms of evasion of the law and the distortion of the fiscal behaviour of the taxpayer. Some owners speak about the possibility to sue the state on grounds of non-constitutionality. While others wonder, referring to the lump tax, the non-deductibility of the VAT for cars and fuels: if the expenditure is not deductible, why issue invoices? And if the invoice is not issued – we can ask ourselves – what will the state cash?
Other owners are preoccupied with VAT enforcement upon the acquisition of cars. In the initial promises of the Finance Ministry, the deductibility was maintained. During the past week negotiations between Government and employers’ associations, the respective problem was one of the most worrying, conducting to the interruption of the discussions by the employers’ associations. Although the idea of the deductibility for the cars purchased in leasing was still accepted at central level, the Government did not fully agree, and the enforcement norms are not clear enough to eliminate the doubts.
Under these circumstances, the question from the headline remains valid and it will remain so for a good period of time. There are specialists who show that in the short run it is possible to register a growth of the budgetary incomes. On the medium and long term, the effects could become opposite.
How much does the state gain from the new tax? This dimension seems to be shocking, even for the period of crisis that we are crossing. Thus, it is expected to collect EUR 81 M from the lump tax, another EUR 97 M from the taxation of the reserves from reevaluation, to which EUR 123 M from the non-deductibility of VAT for cars and the failure to settle the fuel costs add. Thus… EUR 302 M more to the state budget. Is this a relevant amount at the level of the Romanian state, as I said, even for a period of crisis? Are we that poor? Is it worth enforcing the new taxation proposals considering the risks that they involve, chiefly the growth of unemployment and the encouragement of tax evasion, implicitly the growth of the black market?