Foreign investors might reconsider their position on local market

Representatives of the Businessmen Association also disapprove of the government’s prospective tax increase measures, as these will affect the business environment on the whole.

The Foreign Investors Council (FIC) draws everyone’s attention to the negative impact of certain fiscal measures announced by officials of the Ministry of Public Finance, regarding a new tax (1.5 percent) on special constructions in the energy sector, telecommunications, utilities & infrastructure and other sectors making use of such constructions. The FIC expresses the concern that policy makers did not conduct a proper consultation and did not perform an impact assessment on the consequences that would affect not only the direct taxpayer but also, indirectly, through the cost, the end consumer of the products of the industries subject to the new levy, a press release informs. “The recent developments only go towards strengthening the opinion that the Romanian tax environment is dominated by a total lack of predictability, an ingredient all too necessary for long term investment planning. The lack of predictability and consultation when setting new taxes will lead FIC members to reconsider their position on the local market and redirect present and future investment towards jurisdictions which offer a satisfying level of fiscal stability, at least in the medium and short term. Moreover, these negative signals of fiscal instability will also impact the process of privatizing/listing state-owned companies initiated by the Government, as these projects will be blocked by uncertainty or simply fail,” the document reveals.
The total absence of consultation and the potential implementation of the tax on special constructions in its actual form will generate a devastating boomerang and affect the credibility of the political decision-making process. “Last but not least, the authorities estimate extra revenues of approximately EUR 100 M following the implementation of the tax on special constructions but this amount will be outrun significantly by the real tax burden placed on the companies which own these types of constructions.”
Although the FIC understands the government’s need to cover the budget deficit, FIC reminds policy makers that they should focus their resources on strengthening fiscal authorities and thus improving tax collection from frequent tax evaders. “We reiterate the importance of an open and transparent dialogue which allows all stakeholders to contribute efficiently to the adoption of adequate tax measures leading to a competitive tax system and a stable business environment in Romania.”, the communiqué concludes.
In response, Prime Minister Victor Ponta said Romania cannot be “everybody’s El Dorado,” as the country with the lowest taxes in Europe. “(…) We still have a responsibility to the citizens of this country. What am I supposed to do? Cut pensions, wages, and keep closing down hospitals, as it was done in 2010? I think that is wrong. We will continue discussions, but I negotiated these measures first and foremost with the European Commission and the International Monetary Fund,” the PM said.
AOAR rejects the idea of increasing taxation
Likewise, AOAR (the Romanian Businessmen Association) also disapproves of the government’s prospective measures to increase fees and taxes, as these would have both direct and indirect effects on the business environment. “A clear proof in this respect is the increasingly lower profitability of business that is reflected by lower budget revenues and stems from income taxes,” the Association notes in a press release. However, Association representatives say they understand it is necessary to cover the many mandatory budget expenses, some of which were generated by inconsequential measures taken between 2010 and 2011. Moreover, AOAR believes even if economic growth in 2014 is seen as a guarantee, overall, the package of fiscal measures is in no way aimed at supporting the business environment. “Public statements that deem maintaining the tax rate at 16 percent and VAT at 24 percent a sufficient measure for satisfying the business environment are an identical reiteration of statements made by government officials in 2009 and 2010 (before the VAT was increased from 19 percent to 24 percent),” the press release states.
AOAR is in favoir of expanding the tax base even by adopting unpopular measures as long as financial sources are used efficiently. On the other hand, the Association rejects the idea of increasing taxation with the purpose of excessively financing the operational expenses of central and local administrations through investments with no economic or social impact.

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