Economy and taxation

Romanian businesses to pay higher taxes as of 2018 if the government introduces tax on income rather than profit.

Mihai Pelin, 04.07.2017, 14:00

The new
programme of the ruling coalition formed by the Social Democratic Party and the
Alliance of Liberals and Democrats provides that Romanian businesses are to pay
their taxes based on their turnover rather than their profit. This measure is
expected to come into force on 1st of January 2018. Big companies
will no longer pay a 16% flat tax, as is currently the case, but a 1, 2 or 3%
income tax.

The governor of
the National Bank Migur Isarescu said the institution he runs would analyse the
measure carefully when the final decision is taken. He emphasised that the
proposal to introduce a tax on turnover rather than on profit did not come from
any Central Bank expert:

Turnover tax
exists in many countries. I’m not saying it’s good thing or a bad thing. The
ideas attributed to the Central Bank can be found in any economic policy
textbook, so they don’t necessarily have to come from someone working for the
National Bank. What’s important is who embraces theses ideas, in what form and
how they put them into practice.

Prime minister
Mihai Tudose is reportedly in favour of turnover tax, provided it is levied
gradually and only on certain types of businesses, government sources have
said. The same sources say the prime minister is waiting for the result of the
simulations conducted by the finance ministry before making a decision.
Experts, however, say the measure would be disastrous for the business
environment and generate a wave of negative consequences. Moreover, they warn
that the application of differentiated turnover tax may lead to competitive
discrepancies between countries that will affect the cost of end products, with
Romania thus risking the activation of an infringement procedure against it.

According to an
analysis carried out by the Association of Financial and Banking Analysts in
Romania, the effects of a possible turnover tax will be a heavy burden for most
businesses in Romania, particularly those with incomes in excess of 1 million
euros, 60% of which are with foreign capital. According to this report, sectors
such as distribution and retail sales, which traditionally see high turnover
but low profit margins, will be most affected by the new measures. This is the
first impact study of the new tax measures, considering that neither the
government nor the authors of the governing programme of the ruling coalition
have produced a document of this type so far.