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May 18, 2022
ECONOMY FINANCE&BANKING

CDR’s warning: Changes proposed for the current fiscal system expose the economy to risk and instability. Anghel: We are still too green to implement household tax.

Sending out hundreds of employees to pay their taxes on their own will be a “very delicate” endeavor and we are currently a bit too green to implement the household tax system, work group coordinator at the Coalition for the Development of Romania (CDR) Daniel Anghel told a specialist conference on Wednesday.

“There are 18 countries in the European Union, such as the UK, Italy, the Czech Republic, Portugal, Sweden or Finland, where the concept of family unit does not exist. In another four countries – Ireland, Germany, Poland and Spain – this concept is optional, and only six countries have this concept in place (like Denmark, France, Greece, Luxembourg or the Netherlands). In all EU countries, it’s the employer who retains the wage tax. It is my understanding that Romania wants to do exactly the opposite. Sending out, say 1,000 employees, to pay their own tax will prove a delicate endeavor. This is a tax that will have to be paid for the year ahead. In 2018, there will basically be a cash gap. I believe that at this point, we are a bit too green to have such a system in place. This area needs to be far better prepared, and from the point of view of voluntary compliance we would still need a few more steps. There are states with a democratic society of tens, even hundreds of years, and that have little by little shifted to this system or not,” Anghel said.

The CDR representative argued that Romania needs to ponder in all seriousness if it wants to implement the US tax model, given that President Trump pursues fiscal cuts as well as the removal of tax deductions, precisely because of the current very tangled legislation.

Anghel added that, with regard to the flat tax rate, CDR wants it kept in place because it has proven its viability.

“It was introduced in Romania in 2005 and its results in terms of budget revenues and GDP growth were spectacular. If I remember well, immediately after the implementation of the flat tax rate, tax revenues rose from 17 billion to 23 billion euro and their GDP share rose from 27.7 pct to 28.5 pct, and this despite a lower tax rate than in the previous system. This flat tax rate system created at that time more than 150,000 jobs that had before gone untaxed, and brought to light revenues from the gray or black economy,” the CDR official said.

Representatives of the business community in Romania, as well as of professional associations and organizations, attended on Wednesday a conference on the planned change of the tax system.

The event was organized by the CDR, via the Romanian Businesspeople Association (AOAR), the Romanian Business Leaders (RBL), the American Chamber of Commerce in Romania (AmCham), the French Chamber of Commerce and Industry in Romania (CCIFER), the Romanian – German Chamber of Commerce and Industry (AHK), the Foreign Investors Council (FIC) and the Chamber of Tax Consultants (CCF).

 

CDR: Changes proposed for the current fiscal system expose the economy to risk and instability

 

Coalitia pentru Dezvoltarea  Romaniei (Coalition for Romania’s Development -CDR)   warns that, in the absence of an impact survey, the draft law amending the Fiscal Code by implementing the global household taxation may cause serious consequences for the economy. CDR is open to analyze, at the consultations organized by the Government, the impact survey of the draft law introducing the Global income Tax (IVG). “We appreciate that the survey must indicate the alternative measures necessary to compensate the budget deficit caused by decreasing the tax rates, as well as the financing sources for the sudden and significant decrease of the budget revenues caused by the elimination of the income tax withholding”, reads a press release issued by the Coalition.

CDR also supports a fiscal system ensuring a short-, medium- and long-term sustainability of the budgetary execution, by respecting all the macroeconomic indicators assumed by Romania. The current system of the single tax rate has led, in the last 12 years, to the increase of the Gross Domestic Product (GDP), of the investments and the budget revenues, by taxing an important part of the economy, as well as to voluntary compliance, and implicitly to diminishing the “black” or “grey economy”. The single tax rate has simplified the tax management in Romania, for both the tax payers and the authorities, it has increased the standard of living of the active population, and indirectly, of the pensioners, through the higher funds collected in the consolidated general budget.

CDR warns that, by comparison, introducing the new global income tax system exposes Romania to instability and useless economic risks, especially in the absence of a serious impact survey and a multiannual implementation plan.

“The implementation of IVG is not sustainable, because eliminating the withholding system and the monthly payment of the income tax (for example, salaries, dividends, interests, etc.), as well as the anticipated tax payment (for example, for the income from independent activities, rents, etc.) will cause a serious decrease of the budget revenue in 2018, which, compared to 2016, will mean a loss of the income of at least 4% of the GDP. Such a measure may have the implicit consequence of being necessary to introduce other taxes and fees in the coming years” also reads the press release.

The members of the Coalition appreciate that introducing the IVG is an unrealistic approach because it relies on the voluntary registration of more than 7 million households to the National Authority of Fiscal Administration (ANAF) in about a half a year, in the context in which the term “household”, as a fundamental pillar of the new system, is not regulated by the Romanian law and the collecting mechanism is unclear. “Analyzing other fiscal systems (for instance, the American one), the taxation is made individually, and only optionally (if it is in the tax payer’s benefit) it is made at the level of the family consisting of husband, wife and children”, CDR stated.

The Coalition’s specialists also appreciate that implementing the IVG is unrealistic and expensive, because the Government will have to adapt ANAF’s computer system, which is currently facing a deficit of the hardware architecture, and the “artificial” increase of the number of people who are subject to taxation may cause its collapse. “Adapting the software applications involves additional expenses to modify the current systems defined on the base of the single tax rate and designed with funds from the World Bank. Even higher expenses will be necessary to increase the level of professional training of the fiscal bodies and the educational level of the tax payers, in order for the new rules to really be respected” stated the members of the Coalition in the press release published on Wednesday.

On the other hand, in order to be able to operate, the new proposed system would need 35,000 “fiscal consultants”, CDR claims. “These specialists don’t exist. Today, a number of 5,489 consultants are registered in the Register of the Fiscal Consultants Chamber, of which 4,101 consultants are active; many of them are already employed, so they are not available to carry out the tasks mentioned in the MFP’s document. Moreover, these ‘fiscal consultants’ will have to work for a maximum of three months per year, for a double annual salary, compared to the real fiscal consultants, whose work involve a qualification and much more complex activities”.

“The lack of realism and sustainability of the new system actually indicates steps ahead for introducing a fiscal system based on progressive tax rates, which CDR doesn’t support.

CDR supports an attractive, simple and sustainable fiscal system of the budget execution, and stays open for talks with the representatives of the MFP (Public Finance Ministry – e.n.) and the Government, in order to analyze together the impact survey of introducing IVG” also reads the Coalition’s press release.

 

 

 

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