The Government modified the Fiscal Code through an emergency ordinance adopted on Friday, in order to implement the fiscal measures included in the governing platform confirmed by Parliament on January 4.
Corporate tax exemption for innovation- and R&D-oriented companies, approved
Thus, the tax exemption for R&D companies will be in force in the first 10 years of their activity. Likewise, for newly established taxpayers that are exclusively active in the innovation and R&D sector, as defined by law, the exemption is offered for a period of 10 years since the emergency ordinance comes into force, in observance of the state aid legislation.
Taxpayers who are active in the innovation and R&D sector must currently pay a 16 percent profit tax.
Minister Florin Jianu: I am glad that first measures approved by new Gov’t aim at the business sector
“The Government approved on Friday the exemption from corporate tax of companies that conduct activities solely in the innovation as well as research and development sector, and the introduction of a 1 percent tax for small enterprises with one or more employees, following the adoption of an Emergency Ordinance for the modification and completion of the Law regarding the Fiscal Code”, announced the Ministry for Business Milieu, Commerce and Entrepreneurship (MMACA).
“I am glad that the first measures approved by the new Government aim at the business milieu, especially small enterprises and the development of the innovation and R&D sectors. I consider that the measures adopted will favour the increase of the number of companies started by young researchers, will stimulate the attraction of foreign investment in Romania and the move toward an innovation-based economy. Lowering the taxation rate from 2 percent to 1 percent and the modification of the threshold from 100,000 euro to 500,000 euro, aims at 80 percent of active enterprises and represents an improvement of the fiscal framework and a step toward bureaucratic simplification,” declared the Business Milieu, Commerce and Entrepreneurship Minister, Florin Jianu.
According to MMACA, the modifications brought to the Ordinance aim firstly at exempting from corporate tax companies that carry out solely innovation and R&D activities, changing the statute regarding the definition of small enterprise by increasing the threshold of revenue achieved on December 31 of the previous fiscal year from 100,000 euro to 500,000 euro, and the introduction of the 1 percent tax for small enterprises with one or more employees.
Tax on micro-enterprises’ revenues
In what concerns the “tax on micro-enterprises’ revenues,” the emergency ordinance brings the following novelties.
Firstly, it hikes the limit of revenues registered at the end of the previous fiscal year from 100,000 euro to 500,000 euro, thus modifying one of the conditions that Romanian legal persons must meet in order to be considered micro-enterprises.
Likewise, in order to stimulate job creation and to equitably distribute the fiscal burden among micro-enterprises, a tax of 1 percent is set for micro-enterprises that have one or several employees, the current tax of 2 percent for micro-enterprises that have a single employee being abrogated.
Another measure consists of eliminating the income tax owed by natural persons who register incomes from seasonal activities based on fixed-term individual labour contracts.
The proposed measure will result in the development of skilled human resources.
At the same time, also modified was the manner of establishing the income tax owed for incomes obtained by transferring or subdividing properties.
Thus, a tax-free ceiling is introduced in the case of income obtained as a result of the transferring or subdividing of property rights held by living natural persons on constructions of any type and related plots of land, as well as on plots of land not built up. The ceiling stands at RON 450,000.
For this sum, the tax is calculated by applying the 3 percent tax to the difference between the value declared by the contractual parties and the tax-exempt sum of RON 450,000.
The decision is meant to encourage real-estate sales, which would stimulate the residential constructions industry.
Mandatory social contributions
The emergency ordinance introduces the exception according to which persons who register incomes from inventions and/or other sources do not owe health insurance contributions for these incomes if during the fiscal year they register incomes from salaries and incomes assimilated to salaries, from pensions, from independent activities, lease and rental of real-estate property, from associating with a legal person or from agricultural, forestry and fishing activities.
At the same time, the ceiling representing five average gross salaries, representing the monthly basis of calculus of social security contributions, will be eliminated in the case of persons who register salary incomes and incomes assimilated to salaries. Thus, the goal is to eliminate inequities concerning the payment of contributions in equal percentages for all employees, by giving up on the current ceilings concerning social security contributions and health insurance contributions.
Technical measures correlating the fiscal measures with the legal framework in force were also introduced.
Minimum salary raised to RON 1,450 monthly
The Government approved, on Friday, the raising of the minimum salary to RON 1,450 monthly (approximately 320 euro), starting with February 1, for a full work schedule of 166 work hours on average monthly, representing a wage of RON 8.735 per hour.
“Thus, the value of the minimum salary is increased by 16 percent as compared to the end of 2016, namely from RON 1,250 to RON 1,450,” a release of the Executive remitted to AGERPRES shows.
According to the quoted source, the measure will have positive effects on economic growth by approximately 0.2 percentage points and on the stimulation of job occupancy and reducing unreported employment. Furthermore, the measure has an important social impact, ensuring the increase of living standards and reducing social inequity, the quoted release shows.
“Concluding an individual labour contract with the establishment of a base salary smaller than that approved by the Government today, namely RON 1,450 monthly, is considered a misdemeanour and is punishable by fine worth RON 300-2,000,” the Government also mentions.
Higher salaries for artists and local public administration, higher incomes for pensioners
The Government also approved on Friday a series of fiscal-budgetary measures provided for in the Governing Platform 2017-2020, through which it increases salaries for some personnel categories in the budgetary sector, student financial aid, public pensions and social benefits for pensioners.
According to an Emergency Ordinance (OUG) approved by the Executive, the salary hike will be applied starting on February 1st, reads a press release of the Government sent to AGERPRES.
“Staff paid from public funds in public institutions and authorities of the local public administration benefit from a 20 percent increase as compared to the level granted in January 2017 of the gross quantum of base salaries/allowances, as well as of the quantum of supplements, allowances and all the other elements of the salary system that are part of the gross wage, in so far as the respective personnel performs activities in the same circumstances. The measure does not apply to personnel occupying elected public offices,” reads the press release.
The OUG also establishes that, starting on July 1, the value of one pension point will be increased by 9 percent, to RON 1,000.
Furthermore, starting on March 1, the level of the minimum social pension will increase to RON 520.
In addition, the financing of salaries of personal assistants for persons with severe disabilities or the monthly indemnities of persons with severe disabilities will be ensured fully from the state budget, from sums distributed from the VAT, based on the number of beneficiaries communicated by the territorial administrative units. Until now, the financing was ensured up to 90 percent from the state budget, the release says.
Another measure set down by the normative act says that students enrolled in normal classes with an accredited higher-education institution will receive fare-free travel by train in all types of train, in second-class carriages.
According to the OUG’s text, the ordinance has a budgetary impact of RON 5.1 billion in 2017. Supplementary revenues of RON 377 million are expected as a result, however budget expenditures will rise by RON 5.5 billion. The ordinance does not mention the budgetary impact in future years.
BNR Governor’s warning: “Supplementary measures” if deficit surpasses 3 pc of GDP
The National Bank of Romania (BNR) welcomed the current Government’s commitment to maintain the budget deficit at a maximum level of 3 percent of GDP, but has prepared supplementary measures in case that level is surpassed.
The national bank points out to a backdrop featuring domestic risks related to the post-elections situation and the way this year’s budget will be built, according to the statements that BNR Governor Mugur Isarescu made on Friday, News.ro informs.
Finance Minister Viorel Stefan recently stated that despite the announced salary hikes and tax cuts, the budget deficit will not surpass 3 percent of GDP.
“We welcome the Finance Ministry’s statement to maintain the budget deficit at a maximum level of 3 percent. We consider it a commitment,” Isarescu said at the press briefing that followed the first monetary policy meeting of 2017.
Asked about the measures that BNR could adopt in case the budget deficit surpasses the level established by European Union treaties or in case the inflation rate surpasses the level targeted by the BNR, Isarescu stated: “We always have scenarios and established supplementary measures.”
In what concerns the announced Government measures to hike salaries and cut taxes, Isarescu was reserved in making statements, claiming that the budget, which could contain novelties, would first have to be seen.
The Governor nevertheless warned about risks related to the domestic situation.
“Domestic risks are related to the post-elections situation we are seeing on television. Talks, controversies, the building of the budget,” Isarescu stated.
On Friday, Prime Minister Sorin Grindeanu announced at the start of the Government meeting that the budget commitments that will be adopted, such as the hiking of the minimum salary, of pensions and of student scholarships are accompanied by measures meant to increase budget revenues, such as the elimination of the ceiling for social security and health insurance contributions owed by those whose incomes are five times higher than the average salary, so that there is “a balance” between revenues and expenditures.
Inflation back to positive value in Q1 of 2017, below previous prognosis
The annual inflation rate will return to a positive value in the first quarter of 2017 but the level will remain below the one estimated in the most recent medium-term prognosis, National Bank of Romania (BNR) Governor Mugur Isarescu stated on Friday during the conference in which the monetary policy decisions adopted by the Administrative Board of the institution were presented.
“The most recent evaluations confirm the outlook of the comeback of a positive annual inflation rate in the first quarter of 2017, simultaneously with it resuming its growth due to the temporary impact of lowering the standard VAT to 20 percent, of the aggregated demand surplus, and of the growth in labour unit costs dying out. The level where the annual rate of inflation is expected to position itself is however inferior to the one highlighted in the most recent medium-term prognosis,” explained the BNR governor.
At the same time, the press release issued after the Administrative Board meeting states that the annual inflation rate dropped in November 2016 to -0.7 percent, below the forecasted level, after it had reached -0.43 percent in October.
“The annual inflation rate’s drop to negative values was mainly due to the decrease of the tobacco products’ price dynamics and the impact of the lowering of Mandatory Car Insurance (RCA) policy tariffs,” further said Mugur Isarescu.
Furthermore, the BNR decision was taken in the context in which the annual growth slowed down in the third quarter of 2016, the rate of decline being stronger than anticipated.
“The annual dynamics of the Gross Domestic Product abated to 4.4 percent (from 6 percent in the second quarter), exclusively as a consequence of the slowing down of domestic demand growth, based on both components, consumption and investment. The negative contribution of net exports diminished significantly, against the background of the reduction of the imports’ dynamics in relation to the exports of goods and services. On the supply side, services have become again the most dynamic sector, having the greatest contribution to economic growth,” further reads the BNR release.
For the upcoming period, inflation outlook risks stem from the external and the domestic environment, underscores BNR. “Externally, there are risks related to the economic growth of the Euro Zone, the European Banking system, the Brexit negotiations as well as the risks regarding the evolution of oil prices and other raw materials,” Isarescu also said.
The Administrative Board of BNR decided on Friday to maintain the monetary policy interest rate at 1.75 percent per year, to continue to adequately manage liquidities in the banking system and to maintain the current level of mandatory minimal reserves’ rates for the RON- and forex-denominated liabilities of credit institutions.