Fiscal Measures

Starting 2015, individual incomes may be subject to progressive taxation again.

Corina Cristea, 17.03.2014, 13:33

The appointment of a 33-year old woman as the new Romanian Finance Minister was received by many with circumspection, although Ioana Petrescu’s Harvard PhD degree may have helped alleviate the fears that she would not be up to the task. Invited to a private television station, Ioana Petrescu explained the fiscal measures that the new Ponta Cabinet is planning. Talking about fiscal relaxation measures, the Finance Minister pleaded for a 5% reduction of the social security contribution paid by employers for each employee, because this would give some breathing space to the business environment.

The measure is likely to bring to light much of the black market, ensuring that those people employed without legal contracts can access the benefits provided by official employment. Exempting reinvested profits is another good measure to encourage investments and generate capital, says Ioana Petrescu. As for the VAT, which currently stands at 24%, plans are being made to bring it back to 19%, where it was until the summer of 2010, and even lower for basic foodstuffs, if the circumstances allow it. Similarly, a shift is planned for 2015 from the flat tax to progressive taxation of individual incomes, with taxes of 8%, 12% and 16%. The 16% tax on company revenues will however be maintained.

On the other hand, in the same television show, “Ernst&Young” Executive Manager Gabriel Sincu pleaded for the current taxation level, arguing that for the past 9 years the flat tax rate was the cornerstone of the Romanian taxation system, which allowed for the construction of a functioning system and keeping Romania attractive to investors. The shift to progressive taxation, Minister Petrescu argued, is designed to reduce the tax burden, and the same goal is pursued by reducing the number of taxes. At present, the number of taxes and charges levied in Romania is around 200, and the Finance Minister said analyses are being made to see whether some of them could be scrapped. The new Finance Minister categorically rejected the option of new fiscal amnesty measures, saying that this would only entail a temporary increase in tax collection, whereas curbing tax evasion, for instance, would be more likely to generate sustainable collection improvement.