Fiscal relaxation measures set forth by the Romanian government

The Romanian Government has announced a relaxation in fiscal targets, starting next year.

România Internațional, 19.02.2015, 13:44

Romania is one of
the European countries with the lowest tax-to-GDP ratio, that is below 32%. The
collection of budget revenues was rather modest last year, just like in the
previous ones. For more than a decade now, Romanian governments have come up
with proposals to increase revenues by improving the rate of tax collection,
but none of them have been actually implemented. On Wednesday, the current
Government announced an avalanche of fiscal relaxation measures, scheduled to
come into force in 2016. The reduction of the VAT, of contributions to the
social security fund and of the flat tax are just three of the over 600
amendments to the new Tax and Tax Procedure Codes.

As regards the reduction of
the VAT, which now is 24%, it will be done in two stages: a 4% drop next year,
and another 2% drop starting 2018. For basic foodstuffs, such as meat, fish,
vegetables and fruit, the VAT will be 9% starting in 2016, just as it is today
for bread and pastry products. On the other hand, effective as of 2017,
contributions to the social security fund will stand at 7.5% for employees, as
compared to 10.5% as it is now, and 13.5% for employers, as compared to 15.8%
today. Finance Minister Darius Valcov says that easing tax pressure will
encourage legal employment, given that the Romanian labour tax system is quite
discouraging. In order to boost investment, the Government proposes the
elimination of taxes on constructions and dividends. Also, the flat tax will be
reduced to 14%, starting 2019. The Romanian Finance Ministry has also proposed
lower excises on diesel fuel by 20%, on lead-free gasoline by 18.6% and on beer
by more than 15%. Moreover, excises on coffee, jewelry and vehicles with a
capacity of over 3000 cubic centimeters would be eliminated altogether.

On the other hand,
according to the new Tax Code, all individuals with income shall pay
contributions to the social security and health insurance funds, and taxes for
micro-enterprises, just like home and land taxes, will grow. The new draft tax
code has been termed by specialists as ‘revolutionary’, but critical voices
have already been heard. The Fiscal Council warns that such changes, in
particular those regarding the VAT, usually have a strong negative impact on
budget revenues. The opposition, too, believes that this relaxation is not
credible, since the Social Democratic Party, which is now the ruling power in
Romania, has introduced new taxes, has suffocated the business environment and
reduced citizens’ purchasing power. Liberal MP Eugen Nicolaescu claims that his
party will propose a thorough rethinking of the tax system, for the business
environment to ensure an annual economic growth rate of at least 5%. The new
tax code will be under public debate for a month, and then submitted to
Parliament for approval.