The Coalition for Romania’s Development (CDR) expresses its profound concern on the impact of the fiscal policy measures recently announced by the Government, complaining about the lack of predictability and transparent dialogue with authorities. “The lack of a real dialogue between the business sector and authorities is damaging to the economy. All of us have seen the proposals coming from the Finance Ministry. There are 11 normative acts that changed the Tax Code this year. Some of them were included in the Government Program. Our message is simple: let’s breath some air and take 3 or 4 months, whatever is needed, to make an impact study, so we will not have to change again the fiscal context” stated the President of the Romanian-German Chamber of Commerce, Dragos Anastasiu, at a press conference organized by CDR.
The new package of fiscal measures causes confusion and uncertainty, both in terms of costs generated for the tax payers and of budgetary sustainability. “Stop the shock therapy! Salaries have been increased without any impact study. A new shock was created, and measures were taken and then withdrawn.
We have to be realistic, we should stop adopting miracle solutions and shock therapies and we should start working” stated Florin Pogonaru, the President of the Romanian Businessmen Association. The new measures are coming shortly after other changes have been urgently introduced in the fiscal policy, in the context in which the law provides a 6-month term for the entry into force of the fiscal changes. “We cannot agree the measures in the new fiscal package, given the lack of consultation in this matter and the change of rules by night. The lack of trust is unanimous, considering that structural measures in the fiscal policy are taken without a wide consultation of the business sector” stated Daniel Anghel, the leader of the Working Group for Fiscality of CDR.
CDR warns that the new fiscal measures must be accompanied by impact studies, because they can cause serious vulnerability to the Romanian economy. The business environment wishes a period of stability and predictability in the coming years, in which there should be enough time to integrate and adjust the new fiscal and economic circumstances.
The transfer of the contributions from the employer to the employees is not neutral
CDR didn’t ask the transfer of the contributions from the employer to the employee and it warns about the fact that companies in Romania can lose their competitiveness by increasing the gross salary. Employers are not obliged to increase gross salary so that the net salary of the employees will not be affected, which means they will surely be “collaterals victims”.
The most affected categories of employees will be in the IT, research and development fields, where employers should increase gross salaries by around 29%, to be able to maintain the current net salary. The transfer of the contributions to the employee, starting from the assumption that it will be done with the gross salary increase by an average of 22.75%, generates the premises for quick and purely arbitrary increases of the taxes applied to the salary fund. “Also, the 2.25% labour insurance contribution is not neutral, since it applies to an increased salary fund. The business sector doesn’t trust this percentage, because 20% of this contribution is allocated to the state budget. We can talk about 2.25% today, 5% in March and so on, because this is a certain and efficient measure to increase taxes, and therefore the labour cost” stated Ramona Jurubița, member of the Working Group for Fiscality of CDR.
The taxation system for microenterprises should be optional
CDR warns about the fact that increasing the ceiling for the taxation of the microenterprises from EUR 500,000 to EUR 1 million, without having the possibility to opt for the taxation regime, will make the new large investments and the establishment of the companies having share portfolios in Romania become unattractive. The new large investments will be discouraged, because in the initial development period, the new companies register fiscal losses that cannot be reported in the next 7 years, as in the case of the profit tax payer companies. The companies having share portfolios will avoid Romania because the entire current profit tax regime for the “holding” companies cannot be applied anymore, as long as they cannot continue to opt to remain registered as profit tax payers and they will automatically become “microenterprises”, in the absence of a turnover of EUR 1 million.
To correct these consequences, CDR appreciates that the taxation system of the microenterprises should remain optional, not mandatory. This option could depend on the size of the share capital, as it is today. Based on the new provisions, it follows that the companies with a profit margin below 6.25% will pay more than today, while the explanatory note generally indicates a negative budgetary impact of RON 214 million in 2018, corresponding to the collections for 3 quarters, respectively RON 300 to 350 for the years 2019-2020-2021”.
It should be analysed whether raising cap on taxation of microenterprises distorts VAT system
The Coalition for Romania’s Development (CDR) points out in a press release that it should be analysed whether raising the ceiling for the taxation of microenterprises is distorting the VAT system in general and whether it is distorting the conditions for competition at both national and European Union level.
The CDR considers that the implementation of the European Anti Tax Avoidance Directive starting on 1 January 2018 is premature because of the low degree of fiscal education among taxpayers but also among authorities when it comes to concepts such as controlled foreign companies, outbound tax and hybrid instruments.
The CDR considers that the directive should be transposed after real and wider dialogue between the business environment and the authorities, and the coming into force deadline should be 1 January 2019, for both taxpayers and authorities to have the necessary time to prepare. The new stipulation applies to all categories of taxpayers who pay profit tax (entrepreneurial companies, state-controlled companies or companies that are part of international groups) and may lead to a brake in investments, because Romania chose to adopt the most disadvantageous limits that the Directive allows.
“For instance, when we are talking about limiting interest rates, Romania has chosen a maximum deductibility threshold of EUR 200,000, while the limit required by the Directive is EUR 3 million. The EUR 200,000 limit is applied even if a commercial company contracts a bank loan, not being part of the same group of companies, and in this case, for instance, at an interest rate of 4 percent for any loan that surpasses the value of EUR 5 million, the sum of interest rates will surpass EUR 200,000 and, implicitly, the excess will become a supplementary fiscal cost for the company. How can we think that major investments will be made in Romania in these conditions?” Ionut Sas, member of CDR’s working group on taxation, stated.
Delaying the optional character of the split payment of VAT creates more distrust
In the form currently in force, starting on 1 January 2018, all companies will be forced to enter the system for the split payment of VAT. Modifying and adapting the IT systems entails costs that, depending on the size of the business, can surpass tens of thousands of euro, and requires time which is becoming increasingly short. The survey conducted in September among the members of the CDR revealed that several months are needed to adapt and test the IT systems.
“We reiterate that the system for the split payment of VAT does not come to combat tax evasion. The CDR supports the improvement of the collection of budget revenues via measures that do not affect honest taxpayers and we are asking for real measures for the lowering of tax evasion, such as the informatisation of ANAF [the Romanian Tax Authority], the introduction of electronic cash registers with SIM cards, of the electronic issuance of invoices and SAF-T,” Ruxandra Jianu, member of CDR’s working group on taxation, stated.
The CDR points out that, in the published form, the split payment of VAT requires the opinion of the European Commission, opinion that the Finance Ministry does not consider necessary. The report of the European Commission’s mission clearly points out that the introduction of the mandatory system requires a derogation. If the system for the split payment of the VAT remains in force in its current form, Romania risks entering the infringement procedure.