Radio România Internațional

Tag: social security contributions

  • Proposals to amend the Fiscal Code

    Proposals to amend the Fiscal Code

    The Romanian government has analysed, in a first reading, the bill on the modification of the Fiscal Code, which provides for a number of measures which, they believe, will benefit the business environment. Among these measures is the proposal to reduce the income tax to 10% for certain categories of incomes. The government has also discussed several ordinances, which stipulate, among other things, an increase in the minimum gross salary and the reduction of employees contribution to the privately managed pension fund known as Pillar 2.


    The finance minister Ionuţ Mişa has presented the fiscal measures that the government intends to take next year.



    “We intend to cut income tax from 16% to 10% and to also reduce social security contributions, whose payment will become the responsibility of employees. Social security contributions will drop by 2%. The contributions to be paid by employers will also be reduced to 2.25% and will cover the payment of unemployment risk, hazards, medical leave and salary debts.”



    The labour minister Lia Olguţa Vasilescu has announced the governments intention to increase, as of January 1, the minimum gross salary to more than 400 euros. At present, over one million Romanian employees, that is one fifth of the total number of employees, earn the minimum salary. According to the labour minister, the minimum pension and the child-rearing allowance will also be increased.



    “The minimum child-rearing allowance will increase as of January 2018 to 1,250 lei as compared to 1,233 lei at present. The minimum pension will increase to 640 lei and the pension point will go up to 1,100 lei as of July 1, 2018.”



    Minister Vasilescu has also added that the amount to be paid to Pillar 2 will drop from 5.1% to 3.7%. The pension funds Pillar 2 has caused a lot of debates this year, despite the Social Democrats constantly denying rumours that they plan to nationalise this fund. Analysts say the Bucharest Stock Exchange will be most affected by the reduction of Pillar 2 contributions because they will no longer have money for purchasing shares.



    In another development, a survey conducted last month among the members of the Foreign Investors Council has shown that the investors sentiment regarding Romanias business environment is considerably deteriorating, especially as regards legislative predictability and the stability of the fiscal framework. 90% of the respondents said the permanently changing legislation affected the planning of their business. 65% claim the tax burden has increased and 3 quarters believe the business environment has recently deteriorated and that the latest developments have led to a drop in companies trust. The Foreign Investors Council says the authorities should develop a more coherent policy meant to attract direct foreign investments and make the area of fiscal policy more predictable.

  • New regulation on social security contributions

    New regulation on social security contributions

    A controversial bill on a 5% cut in the amount of social security contribution paid by employers has been signed into law by president Traian Basescu. The bill was first passed by Parliament in July and sent to the president for final approval, but the latter sent it back to Parliament for re-examination, saying the measure was good, but unsustainable. The Chamber of Deputies last week rejected the president’s request and again passed the bill in its original version. The president was thus forced to sign it into law, but warned that the budget deficit would grow significantly next year as a result. He doubted whether the government has the resources to compensate for the lower returns:



    Traian Basescu: “15 billion lei is 3.2 billion euros out of the state budget, which I think is difficult to cover otherwise. I expect the government has worked out a few solutions to implement by the end of the year. One very probable move is to cancel the cut immediately after the presidential elections, another to raise taxes.”



    The president criticised the government for not making use of the European funds available for the construction of motorways, the modernisation of the railway network and environmental projects, which could generate more jobs. Prime minister Victor Ponta rejected the criticism and said the private sector will be able to generate more jobs as a result of the cut in social security contributions:



    Victor Ponta: “The state itself does not create jobs, other than hiring public servants. The state is only responsible for public services. In the private sector, the state creates favourable conditions for private companies to create jobs. I don’t think the president’s criticism is fair.”



    Welcomed by the business community, the law on the cut in social security contributions received, however, a negative opinion from the Fiscal Council, the body overseeing the government’s fiscal policies. The Council warns that implementing it without sustainable back-up measures will unbalance the fiscal and budget policy, especially in 2015.



    On the other hand, the fact that the measure takes effect on October 1st, with the start of the presidential election campaign, may point to possible electoral considerations behind it, says the right-leaning opposition in Romania, which argues that while the measure is good, it comes at a bad time.

  • Taxes Set to Decrease in Romania

    Taxes Set to Decrease in Romania

    The Romanian Ministry of Public Finances is working on a number of measures to encourage the labour market and reduce the tax burden, by streamlining collection to public budgets and scrapping a number of taxes that have proved inefficient. A total of 92 taxes and para-fiscal tariffs will be reduced as of July the 1st, says Finance Minister Ioana Petrescu. The top priority is a 5% decrease of the social security contributions paid by employers.



    Ioana Petrescu: “This is a measure which will improve the business environment in Romania, will ease the tax burden on employers that operate under the law. It also eliminates the inconsistencies generated by unfair competition. I hope it will also be an incentive for employers to hire more people that are currently working in the informal sector.”



    The reduction of social contributions, insistently called for by businessmen, will be one of the topics approached in the talks, starting on Monday, between the Romanian officials and representatives of international financing institutions (the IMF, European Commission and World Bank). They will be in Bucharest until June the 16th, for the third assessment of the precautionary loan agreement with Romania. The international experts will analyse whether the budget revenues of the first months of this year allow for a reduction in these contributions in 2014.



    According to the Finance Ministry, in the first 4 months the revenues to public budgets rose by 5.7% compared to the corresponding period in 2013. Apart from the measures to reduce taxation and encourage employment, the IMF wants the elimination of the government monopoly on two key sectors of the economy: energy and infrastructure. The IMF representative in Romania Guillermo Tolosa says Romanian state-owned companies have had very poor results over the past few years in terms of the services provided and financial results, with huge losses and insignificant investments.



    According to him, the arrears of state-owned companies account for 1% of the country’s GDP. On the other hand, Tolosa says, Romania also has a number of strong points, such as a stable macroeconomic framework and low-cost, high-quality labour. A survey run recently by one of the main outsourcing and business consulting companies in Central and Eastern Europe places Romania in the second position in the region, after the Czech Republic, in terms of the costs of setting up a limited liability, and third in terms of the costs for establishing a share company, after Poland and Slovakia.