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April 11, 2021

EY’s Milcev: Business turnover tax would generate many losers

A business turnover tax would generate many losers, as that would be similar to a Value-Added Tax (VAT), and that is why it would even trigger infringement procedures on the part of the European Commission, according Alex Milcev, Leader of Tax and Legal practice of EY Romania.

“The reasons underpinning such measure would probably be that businesses/tax payers are trying to minimise taxable profit by more or less legal methods. That would not be technically correct, as long as there is legislation regulating transfer prices that, when correctly applied, will preclude such phenomena. Such income taxation is currently applied on microenterprises only. Moreover, such tax on the business turnover would be singular in the EU and visibly outside the European trends for a consolidated common tax base,” Milcev is quoted as saying in a press statement released by EY on Monday.

He argued that the business turnover tax is rather similar to the VAT, and consequently the government should analyse to see whether or not such a tax to replace the profit tax would be legal.

“There is a likeliness that this tax runs contrary to the provisions of the VAT European Directive, and so the European Commission opening an infringement case against Romania for that should be expected. Moreover, there will be many losers, such as tax payers on big turnovers but small profits (for instance retail traders and distributors), and businesses facing financial difficulties, as they will have to pay taxes even as they are operating at a loss,” added Milcev.


“Solidarity tax could discourage successful, talented specialists”


Introducing a solidarity tax in 2018 could discourage successful, talented specialists still in Romania, according to Alex Milcev, Leader of Tax and Legal practice of EY Romania.

“A negative consequence of such a measure is discouraging successful, talented specialists who are left in the country as well as those who have made it professionally abroad and may consider returning to Romania. Consequently, this is not just a tax matter, but also a problem of Romania’s attractiveness for human resources and here is where the Government is sending a contradictory signal,” Milcev is quoted as saying in a press statement released on Monday.

He added that both the percentage and the computation of such a tax are still unclear.

“Tax inequities are expected to be generated by this slippage away from the flat income tax, which has served Romania well for more than a decade,” according to Milcev.

Officials are considering levying a solidarity tax on people on exceptional incomes which size is still to be determined, Ionut Misa said at the end of parliamentary hearings to be sworn in as finance minister.

“The solidarity tax will be especially for those on extraordinary income. We are trying not to affect in any way the middle class. Today we are considering such income as at least 10 average wages, meaning 14,500 lei in net terms. We want to make sure this will be deemed as extraordinary income, lest we may tax something that does not exist today… We have both defined the tax size yet,” said Misa.

He added that the tax will most probably be implemented in 2018.

“Today’s analysis has shown that the number of people on such income is quite small. It is less than 10 percent of the income earners,” said Misa.

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