Radio România Internațional

Tag: tax

  • Talks on “solidarity tax”

    Talks on “solidarity tax”


    Romanias coalition government faces significant budgetary strain, after having committed to raise minimum wages, public pensions and child allowances as of January 1.



    These days the 2022 budget is being outlined, and a means to increase revenues would be to levy a solidarity tax on big companies. The idea came from the most junior member of the ruling coalition, the Democratic Union of Ethnic Hungarians in Romania. Its president, deputy PM Kelemen Hunor, said the proposed 1% of turnover will go into investments in priority fields such as healthcare and education.



    “It is a short-term proposal, for one year, in order to increase revenues to the budget at a difficult time, when inflation and the rising energy prices force us to bring additional funding to the budget so as to help the people who need assistance,” Hunor explained. He added that in difficult periods, companies must show solidarity towards the people and the society from which they derive their profits.



    The Social Democrats back the idea, but the Liberals are reluctant. The targeted private or public companies are the ones with turnover above 100 million euros.



    The matter will be discussed with the business community, which has already responded with little pleasure to the rumours of overtaxing. The American Chamber of Commerce in Romania, representing over 470 American, Romanian and multinational companies, voiced concern with the governments plans to increase the tax burden on big companies in Romania, at a time when investments and businesses are already affected by multiple crises.



    After an extended political crisis during which companies confidence in the Romanian business environment plummeted, concurrently with the Covid crisis, the energy crunch and deepening tensions in the labour market, the news of new taxes can only increase the risk of companies turning somewhere else for their investments and expansion plans, AmCham warned.



    According to its officials, the lack of predictability and deepening instability entailed by rushed measures discourage investments and businesses plans for the Romanian market, and the medium and long-term negative impact will overshadow the short-term gains.



    According to economic media, over 300 Romanian and foreign companies operating in the country may be affected by the 1% “solidarity tax”, and figures indicate that this way the government may collect an additional 1 billion euros to the state budget.



    In turn, the Foreign Investors Council also wants the measure dropped, arguing that it punishes precisely those companies that comply with fiscal regulations and have managed to perform properly under restrictive Covid-related circumstances. (tr. A.M. Popescu)


  • Tax on special pensions, disputed

    Tax on special pensions, disputed

    On Wednesday, the Chamber of Deputies passed a bill that introduced taxes on pension benefits. The bill had already been endorsed by the Senate in 2019, and it was backed by all parliamentary parties. It is meant to restore social justice, the MPs argued, given that disparities between the regular pensions and the pension benefits laid out in special laws are, in certain cases, outrageous.



    Perhaps the most insistently covered case is the 15,000-euro pension—the biggest in Romania—paid to a former communist prosecutor who was the commander of a prison. At the opposite pole, the average pension in Romania is little over 250 euros.



    From now on, according to an amendment introduced by the Social Democrat Party and Save Romania Union in opposition and by the Liberals in power, “pension benefits of up to roughly 410 euros are tax-free, those of up to 1,450 euros are subject to a 10% tax, while for pensions of over 1,450 euros, there will be an 85% tax charged for the amounts that exceed this threshold.



    Beneficiaries of these so-called special pensions in Romania include, among other categories, judges and prosecutors, MPs and mayors. Military pensions also have a special status.



    The bill passed on Wednesday did not include Senators and Deputies however, because this required a change in the statutes of MPs. And on Thursday, Parliament reviewed a bill modifying the Fiscal Code and approved the progressive taxation of MP pensions.



    Opposing the parliamentary majority, the Save Romania floor group tried in vain to introduce a bill discarding special pensions for MPs, and explained that progressive taxation of these pensions does not need to be voted by the joint chambers of Parliament. This will lead to the Constitutional Court dismissing the law, on grounds that the same bill was actually voted on twice—once by the Chamber of Deputies as a decision-making body, and once again by the joint Chambers as a Fiscal Code amendment, Save Romania Union president Dan Barna argued.



    He explained that “this is just like a movie where you shove a pack of dynamite at the constitutional foundation of this law, making sure that the Constitutional Court will reject it.



    Conversely, the Social Democrats and the Liberals argued that there are Constitutional Court rulings that require joint Chambers votes on amendments to the statutes of MPs. Both parties emphasised that the law ensures social justice, and voiced surprise at the opposition of Save Romania Union.



    Quite predictably, the Constitutional Court has been notified, by the High Court of Cassation and Justice and the Ombudsman. The supreme court says the bill overlooks successive relevant Court rulings, that the Higher Council of Magistrates has not been consulted and that a number of principles are breached, including the fair taxation principle and the independence of judges.



    Last month, the Constitutional Court dismissed another bill abrogating special pensions, following notifications filed by the supreme court and the Ombudsman.


    (translated by: Ana-Maria Popescu)

  • Government resorts to exceptional procedure to pass 3 bills

    Government resorts to exceptional procedure to pass 3 bills

    Tuesdays Government meeting was, for the first time in history, held in 2 sittings, with an intermission in the afternoon to allow PM Ludovic Orban and some of his Cabinet members to take part in a roundtable organised by trade unions with respect to next years economic prospects. Later in the day, the Government resumed its meeting, with a first reading of a bill for which the Cabinet is to request Parliaments confidence within 10 days.



    The bill concerns the repeal of provisions in the infamous Order 114, dubbed the “greed tax order, under which a year ago the Social Democratic cabinet had introduced additional taxes for banks and ceilings on electricity prices for households. Unhappy with the consequences of that order, the Liberals are now seeking to cancel it. In the talks with business people ahead of the Government meeting, PM Ludovic Orban spoke about the provisions to be cancelled:



    Ludovic Orban: “We want to repeal the provisions regarding ceilings on the price of electricity for households, as well as the current energy export limitations and the overcharges introduced in the energy sector. We also intend to cancel all the provisions concerning privately-managed pension funds in the public pension system, the financial-banking system, and charges in the communications sector. There are a number of other provisions we have in mind, but facilities for consumers will not be affected.



    All these changes will be discussed with the social partners, prior to being pushed through Parliament. Meanwhile, however, the Government initiated an extraordinary procedure, requesting Parliaments confidence on 3 other pieces of legislation: a bill amending the justice laws, the repeal of Order 51/2019 on county transportation, and a bill setting public budget ceilings.



    Back when they were in Opposition, the Liberals constantly criticised the justice laws, which they now want amended to the effect of deferring the early retirement of magistrates, the extension of the seniority requirement for entry-level magistrates from 2 to 4 years and the increase in the membership of judge panels from 2 to 3. The Orban Cabinet, which is now trying to have these provisions deferred, may seek to fully repeal them next year.



    Secondly, the Government wants to define in-county transportation as a public service subordinated to local authorities, so as to make sure that transport companies provide free school transport for children.



    Last, but not least, the Orban Cabinet will take responsibility before Parliament for a bill setting the public budget ceilings on which the 2020 state budget law will be based. Posted for public review on the home page of the Finance Ministry, the bill stipulates a budget deficit of maximum 3.6% of GDP, and a 9.7% cap on personnel expenditure. Next years public budget will also rely on an expected 4% economic growth rate.


    (translated by: Ana-Maria Popescu)

  • December 20, 2018

    December 20, 2018

    PARLIAMENT The Parliament of Romania is today debating and voting on the second no-confidence motion against the Government formed by the Social Democratic Party and the Alliance of Liberals and Democrats, and headed by Viorica Dăncila. According to the Opposition, the current Cabinet is a threat to Romanias national interests, to its economic and political stability. The authors of the motion criticise the laws on the judiciary and claim the Prime Minister failed to comply with the governing programme undertaken at the start of her term. In reply, the PM claimed that the alternative the Opposition offers to citizens is to suspend income increases and even to slash salaries and pensions. Viorica Dancila also defended the justice laws, emphasising that they were endorsed by Parliament, rather than by an emergency decree as it was the case with the Ciolos Cabinet. Initiated by the National Liberal Party, the Save Romania Union, the Peoples Movement Party and unaffiliated MPs, the document was signed by 163 MPs, but needs 233 votes in order to pass. Yesterday the Democratic Union of Ethnic Hungarians in Romania announced that its MPs would attend the meeting, but would abstain from voting.



    STOCK EXCHANGE The Association of Capital Market Professionals says the prospective endorsement of a recent government decree on fiscal and budgetary measures is the most brutal and irrational attack against the Romanian capital market since its re-establishment in 1995. The Bucharest Stock Exchange opened on a slight increase today, but plunged back down, after experiencing its worst day so far on Wednesday. Substantial losses were reported by banks and energy and utilities companies, after on Tuesday the Finance Minister Eugen Teodorovici announced that by the end of the year a government decree would be passed introducing certain fiscal and budgetary measures. These include a so-called “tax on greed charged on banking revenues, and a package concerning energy companies, such as a 3% of turnover contribution, a cap on natural gas prices and electricity price control. The business community in Romania warned against the negative effects of the new taxes announced by the Government for 2019. President Klaus Iohannis urged the Cabinet to reconsider the decree, to negotiate it with employers and trade unions and to endorse a more sustainable version after thorough analysis and review.



    EU The President of Romania, Klaus Iohannis, receives in Bucharest on Friday the Chancellor of Austria Sebastian Kurz, whose country currently holds the rotating presidency of the EU Council. Romania will symbolically take over the presidency of the EU Council, which it will hold as of January 1. The 2 officials will discuss the priorities on the European agenda, such as the future of the Union, the EU budget after 2020, Brexit, and the elections for the European Parliament. On Wednesday in a meeting with the EU ambassadors to Bucharest, President Klaus Iohannis said Romanias goal during its presidency of the EU Council is to begin as soon as possible the negotiations on the future relations between the Union and Britain, if the withdrawal agreement is ratified by London and approved by the European Parliament. Iohannis also said that Romania supports a stronger European Union, which is closer to its citizens and able to guarantee their security and prosperity. He also emphasised the importance of the informal meeting of European leaders in Sibiu on May 9, 2019, when the EU strategic agenda for 2019-2024 will be discussed.



    JUDICIARY Romanias supreme court suspended the serving of prison sentences received by several high-level officials under corruption charges. Among them are the former chief of the anti-terrorism and anti-mafia directorate Alina Bica, who requested asylum in Costa Rica, the former head of the tax authority, Serban Pop, and former Social Democratic ministers and MPs Dan Şova and Constantin Niţă. They have been released, until final rulings are passed on their appeals. The argument put forth for the suspension of their sentences was that the membership of the 5-judge panels passing the rulings had not been correct. The supreme court held drawing of lots sessions for the 5-judge panels 3 times this year, when the Law on the organisation of courts was modified, further to a Constitutional Court decision, at the request of the Government and following an objection by the Social Democratic Party president Liviu Dragnea, who is tried for corruption at the Bucharest Court of Appeals.



    COMMEMORATION Sirens sounded for 3 minutes in Timisoara today, in memory of the day of December 20, 1989, when Timisoara was proclaimed the first city free from communism in Romania. The largest plants went on strike back then, and workers gathered in the city centre, alongside tens of thousands of other locals. The Army withdrew from streets, the protesters who had been arrested were released, and the peoples demands were read out from the famous Opera House balcony. Also on December 20, the first revolutionary committee, called The Romanian Democratic Front, was set up. Members of the families of the Timisoara victims are traveling to Bucharest today to commemorate one of the most important events in modern Romanian history. They will arrive at the place where the bodies of 44 Timisoara heroes, shot dead on December 17, were cremated. The uprising that started in Timisoara spread on December 21 to Bucharest and other Romanian cities. Over 1,000 people died and some 3,000 others were wounded in the shootings in Romania, the only Eastern Bloc country where the communist regime was toppled violently and where the communist leaders were executed.



    FOOTBALL Romanias national football team will end the year on the 24th position in the ranking that FIFA made public on Thursday. Romania started the year on the 40th place. This years 24th place is the best ranking Romanias football team has held since 2016. The teams future opponents in the EURO 2020 qualifiers are Spain, in 9th place, Sweden – 14, Norway – 46, Faeroe – 98, and Malta – 182.



    (translated by: Ana-Maria Popescu)

  • 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.

  • The provisions of the new fiscal code

    The provisions of the new fiscal code

    Passed by the
    Senate of Romania in April, the new draft Fiscal Code drawn up by the
    Government was Monday unanimously passed by the Budget Committee of the Chamber
    of Deputies. The final vote of the Chamber on the bill is scheduled for
    Wednesday.


    One of the key
    measures involves the reduction of the standard 24% VAT rate to 19%. In the
    original text, the slash was only 4%. Finance Minister Eugen Teodorovici said
    on Monday that although the new Fiscal Code would take effect in 2016, the
    measure could be implemented sooner, if the returns to the public budget in the
    first six months of the year allowed it. Eugen Teodorovici:


    We are
    analysing, at the Ministry for Finance, the possibility of implementing this
    measure earlier than January 1, 2016. Our calculations will tell us exactly
    when that can be done.


    This amendment
    was the argument that persuaded even the Liberal MPs, in Opposition, to vote in
    favour of that bill. But although he voted for a lower VAT rate, the former
    Finance Minister Gheorghe Ialomitianu, from the Liberal Party, called on the
    Government to take responsibility for the possible negative effects of that
    measure, which was also received with reservation by the IMF and the European
    Commission.


    According to
    expert estimates, the measure may lead to a widening of the budget deficit by
    2.5 billion Euros, accounting for around 1.5% of the GDP.


    Another
    important stipulation of the new Fiscal Code has to do with slashing the VAT
    rate from 24 to 9% for foodstuffs, non-alcoholic beverages, restaurant and
    catering services. The measure took effect on June 1. The Government sees those
    measures as a means to encourage consumption and implicitly to boost economic
    growth.



    The
    draft Fiscal Code also does away with the special building tax as of January
    next year, and with the 7 eurocent excise on fuels, which pushed the petrol and
    diesel prices up last year. Also as of January 1, 2016, the 16% tax on
    dividends will be eliminated, while the flat tax rate will be lowered from 16
    to 14% starting January 2019. The IMF and the European Commission have
    repeatedly warned that once those fiscal relaxation measures are implemented,
    Romania risks missing the budgetary deficit target agreed on under the current
    stand-by loan agreement.