“The employees’ net income will increase and the employer will not pay more money into the national budget as a result of the income tax decreasing from 16 percent to 10 percent, social security contributions decreasing from 39.25 percent to 37.25 percent and the switch in payment of the mandatory social security contributions from employers to employees”, Finance Minister Ionut Misa said Wednesday.
“The much discussed and debated ordinance that contains amendments to the Tax Code included in the governance program, meaning long time known changes approved by Parliament, brings important benefits to citizens and companies that operate in Romania today,” Misa said at the start of a government meeting, at the request of Prime Minister Mihai Tudose.
Misa pointed out that the first fiscal measure was to reduce the income tax from “16 percent to 10 percent for employees, pensioners, authorised individual traders, on income drawn from copyright and by individual businesses, on rents, on interest, annuities, prizes, agricultural activities, forestry and fish farming, as well as on income from other sources and investment, except for dividend income, where the tax remains at 5 percent.”
“At the same time, social security contributions are reduced from 39.25 percent to 37.25 percent, so there is a two-percent cut in social contributions. In correlation with these two measures, there is a third measure aimed at transferring to employees the payment of mandatory social security contributions incumbent on employers in the case of wage and related income. I would like to mention that the effect of all these three cumulated measures will be an increase in the employees’ net income without the employers paying more money into the national budget,” Misa explained.
“Amending the Tax Code will reduce contributions from nine to three”
The amendments to the Tax Code are also designed to reduce the number of social security contributions from the nine to the three, namely the pension contributions (CAS) the healthcare contributions (CASS) and the employment insurance contribution, Finance Minister Ionut Misa said Wednesday.
“The ordinance aims to reduce the number of social security contributions from a current nine to three, leaving in place only CAS, CASS and the employment insurance contribution. Undoubtedly, this measure will reduce the bureaucracy from a fiscal point of view, while also being a measure that will simplify tax management very much and also reduce employment costs sustained by employers,” Misa said at the start of a government meeting where he unveiled the amendments to the Tax Code.
He mentioned as another “beneficial measure” for employees, “the increase in the gross monthly pay against which personal tax deductions are granted.”
“There is an increase from a current 1,500 lei to 1,950 lei, in the future, in the cap on fixed-amount deductions according to the number of persons in care. Another decrease will be from a current 3,000 lei to 3,600 lei in the future in the cap on bracketed deductions. The measure is taken to support the currently low-income employees, while being a form of assistance, given that a certain amount of the income is deducted from the taxable base. Under this measure, deductions are granted also to persons without anyone under their care, and this is a deduction of 510 lei, while wage earners having more persons under their care will qualify for deductions ranging from 670 lei to 1,340 lei, depending on the number of persons in care,” said Misa.
The minister added that the measure “reduces the tax burden on the workforce, fostering employment and helping increase legal employment.”
“The essence of amendments aims at rules against tax avoidance practices of multinational companies”
The essence of the ordinance amending the Tax Code is represented by the transposition of the European Directive No. 2016/1164 on laying down rules against tax avoidance practices of the multinational companies,” Finance Minister Ionut Misa stated.
“Another measure, we say a beneficial one, even though in the media not everybody agrees with us and we can understand why they don’t agree with this measure, because it refers to the transposition of the Directive 1164 [a European Directive] for laying down rules rules against tax avoidance practices that directly affect the functioning of the internal market. (…) Certainly that the measure is contested because it wishes to limit the deductibility of interest rates between multinational companies of Romania and mother-companies outside the country, because this measure wants to prevent the transfer of profits from Romania to other countries, because this measure wants to increase profit in Romania and implicitly the revenue tax paid by these companies in Romania. Therefore, it’s obviously an extremely beneficial measure for the Romanian economic environment, the state budget and implicitly for the citizens who will benefit from the growth of the amounts allocated and collected to the state budget by several hospitals, highways, much more benefits in their favour,” the Finance Minister explained during the Gov’t sitting.
Misa stated that, in the media, this measure is “neglected,” adding that, in his view, “it is the essence of this ordinance.”
Misa added that he was “the first” to initiate controls in the banking system conducted by the National Agency for Fiscal Administration (ANAF) at the “big taxpayers.”
“Under new amendments, tax authorities will be able to refuse VAT deduction”
The amendments to the Tax Code have special provisions for the instances in which the tax authorities may refuse to grant Valued Added Tax (VAT) deductions in order to avoid possible abuses from them, Finance Minister Ionut Misa told a government meeting on Wednesday.
“There are explicit provisions for the instances in which the tax authorities may refuse to grant Valued Added Tax (VAT) deductions, as resulting from the case law of the EU Court of Justice. The measure is designed to clarify the situations where tax authorities can refuse to grant VAT deductions in order to avoid possible abuses on the part of the authorities (…) I think it is an extremely important measure to the Romanian business environment, a long-awaited measure. There has been a lot of talk in the public and business environment regarding the non-granting of VAT deductions for chain purchases. In fact, an honest and fair economic operator who has acquired an asset or contracted services and made a payment for these services transparently has been unable to deduct the VAT because a fourth or a fifth supplier in the chain did not pay the VAT to the state. Such a situation generated by the tax authority will be virtually impossible in the future,” said Misa.
He added that another measure targets excise duties and special taxes.
“This is also about the introduction of a complementary penalty in the form of seizure of containers and means of transport used for the transport and storage of excisable products not properly labelled or marked or with false markings. The measure is extremely necessary to prevent and combat tax evasion and, at the same time, to ensure a fair competitive environment,” Misa said.
Labour Minister: Gov’t decision on minimum salary to be presented at a later Gov’t meeting
The Government decision about the minimum salary per economy will be discussed at a later meeting of the Government, as now the draft is facing a decisional transparency stage, Labour Minister Lia Olguta Vasilescu said on Wednesday.
“Last week we had a first reading of the government decision related to the minimum wage per economy, which will be presented at a later meeting for now the draft is facing a decisional transparency stage, published on the site of the Labour Ministry, and we also have the approval of the Economic and Social Council,” stated Vasilescu, in the beginning of the Government meeting on Wednesday.
According to the Labour Minister there is no delay in what this Government decision is concerned.
She also stated that the Revisal computer system is prepared to support the modification of the individual labour agreements.
At the Government meeting of October 26, Lia Olguta Vasilescu announced that the minimum salary per economy will grow to 1,900 lei as of January 1 2018.
Ordinance on increasing pension point up to 1,100 lei discussed by the Executive
The Government is set to discuss an emergency ordinance on Wednesday about the increase of the pension point up to 1,100 lei and of the minimum guaranteed pension up to 640 lei starting on July 1 2018, Labour Minister Lia Olguta Vasilescu made an announcement.
“We have the emergency ordinance on the table today, after we had its first reading last week, and it’s referring to the increase of the pension point up to 1,100 lei and of the minimum guaranteed pension up to 640 lei starting on July 1, and also to an the increase in the child allowance, up to a minimum allowance of 1,250 lei, as of January 1 2018, and also about keeping the Pillar 2 quantum in 2018 the same as in 2017,” said the Minister of Labour, in the beginning of the Government meeting.
PM Tudose: Gov’t wants to introduce very firm profit outsourcing measures
The Government wants to introduce some “very firm” measures regarding the outsourcing of profits, Prime Minister Mihai Tudose announced on Wednesday, adding that this has led to “inflammation.”
“There are a number of changes to the Tax Code on the agenda and, in order not to be secretive, I am giving you a piece of my mind and the mind of some of my colleagues about the excessive inflammation of public opinion. It is not about the switch of the paying of contribution, as there the trade unions and employers’ associations who until very late were very fine with switch, got inflamed after the Government wanted to introduce some very firm measures regarding the outsourcing of profits, by doing nothing but transposing into the Romanian legislation a European directive along with other measures that we think are worth taking so that the profit cannot be entirely deductible, so that the Government is left with some money from which to do education, healthcare and infrastructure. Some multinationals have got inflamed, but fortunately, I understand that they have understood that it is not the case because the end will be the same,” Tudose said at the beginning the Government meeting.
Hundreds of people protest in the Victoriei Square against tax changes
A few hundred people attended a protest before the Government House on Wednesday at noon, voicing their dissatisfaction with amendments to the Tax Code.
The maximum was reached around 13:30hrs, after which most of the protesters, mostly young people, left the place.
They chanted anti-government slogans and against the the Social Democratic Party (PSD), major at rule, urging people to join them.
Their placards were reading “The government wants a new law; it scatters with one hand, but gathers with two,” “Say no to tax switches! “, “PSD, the red plague,” in Romanian, and chanted “Get out of the house if you care!,” “Solidarity!,” “DNA comes to take you!,” “We do not want to be a nation of thieves!.”
The protesters said they were afraid that as a result of the newest considered changes in the Tax Code wages would drop and that they did not want to pay for electoral promises.
Traffic in Victoriei Square was not interrupted and no incidents were reported. At around 15:00hrs, there were less than a hundred people at the scene.