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AOAR: Solutions to imbalances produced by chaotic tax legislation – business environment reaction to a slander from a minister

de Adrian N Ionescu , 12.2.2018

The Businessmen’s Association of Romania (AOAR) proposes a series of solutions to get out of the “chaos” of the fiscal and revenue legislation adopted last year.

The proposals aim at “strengthening the Romanian capital, attracting direct investments, stimulating efficient work, increasing the administrative capacity of the state”, according to a summary presented on Thursday.

“We have called so far for transparency, predictability, stability, equality before the economic laws, and so on. But logic is what is missing much more than these. What we want now is the logic. We do not ask for lower taxes,” Florin Pogonaru, president of AOAR, said.

By the measures proposed Thursday, AOAR intends to continue the strategy change decided last year, “from the reactive to proactive attitude,” according to the officials of the organization.

  1. Corporate tax and tax consolidation

Among the proposals in the field, to encourage investment, it is worth noting:

  • the reintroduction of the possibility to opt for the corporate tax, below the turnover of one million euros, a measure “without which Romania is removed from the map of new investments”;
  • revision of the limits for the interest deductibility without which companies that make investment are seriously affected.
  • fiscal consolidation within Romanian holdings.

AOAR argues that the fiscal consolidation measure would reduce the costs for the Romanian owned holdings, which would no longer have to prepare the transfer pricing files. It would also be eliminated “a significant cost for ANAF, for verifying these files for nothing,” because Romanian holdings do not, in general, make intragroup external payments.

ANAF could consequently focus on external payments made especially to countries with reduced tax rates or preferential tax regimes;

Tax consolidation can make Romania a regional hub for investors,” says AOAR

The proposal is aimed at applying the non-discriminatory treatment of the 5,000 Romanian owned companies, compared to the 68,000 foreign-owned companies (which make the consolidation of their balance, legally, at the level of the “parent” company, “at home“).

  1. Without further reducing VAT. ANAF digitization

AOAR asks for setting aside the VAT cut to 18%, even if it appears to be in favour of businesses.

“Consumption is anyway growing like Prince Charming, and we do not believe it is a priority to have tax incentives to increase consumption. We need money to invest in infrastructure, education, not to stimulate the consumption that is based on imports,” says AOAR.

Instead, AOAR asks the Government to:

  • speed up the electronic cash registers (AMEF system);
  • introduce the electronic billing system in B2B;
  • introduce the SAF-T (Standard audit File for Tax) reporting model as soon as possible, which would allow the remote control;

Those who oppose ANAF’s computerization today, support the chaos that produces billions for thieves,” said Gabriel Biris, a member of the AOAR leadership.

  1. Income tax and mandatory social contributions

The income tax cut from 16 to 10% is “a harm already produced.” On the other hand, “too high” social contributions will continue to lead to “salaries concealed by other forms of income“.

The solution proposed consists of:

  • capping the CAS and CASS base for all types of income, on their sum (not on each individual income) at 3, maximum 4 average national salaries;
  • removing exceptions
  • “the total tax burden should be established based on HOW MUCH and not HOW we earn”
  1. Fiscal credit for nurseries/kindergartens

Stimulating birth rates is a national priority, as well as encouraging young couples to stay in the country. This could also be obtained by encouraging employers to spend on the nurseries from the entrance of the factory, office buildings, possibly “under a public-private partnership where they are most needed,” says AOAR.

“The employer pays and deducts the amounts paid from the due taxes within a limit to be calculated”. It would also be attained the provision from the government program, which refers to creating 2,500 nurseries.

Reaction to slander

With the proposed measures, AOAR says it reacts to the slanderous speech given by Minister of Labour and Social Justice Olguta Vasilescu on Wednesday, whose accusations it dismisses as “unacceptable”.

Olguta Vasilescu said that “if their salary dropped (the employees in the private sector) that means that the employer wanted to increase its profit and that is all, it stole from the employee, it is not the Tax Code’s fault.”

On the other hand, AOAR officials have also exemplified as being illogical, the offensive against multinationals that “are the only ones that keep Romania linked to the European business chains”;

As far as the already approved illogical measures are concerned, such as the income tax cut from 16 to 10%, AOAR warns that might take revenge even this year, at the level of local administrations, unless the rational and necessary measures are taken.

2018 will be the year of the populism’s revenge. What we see today with the salaries, that they have increased, or not, is a form of the populism’s revenge. Populism is not logical, it is devastating in both directions, when it increases and when it gets revenge. Unfortunately, when it takes revenge, it does not do that only on those who promoted it but on us all,” said Florin Pogonaru.

Other requests

  • Maintaining the flat rate taxation – changing it is not appropriate, any change to the tax system increases ANAF’s costs without any estimate of revenues.
  • Keeping the Government’s promise to not introduce new taxes in 2018
  • Increasing the financial autonomy of local administrations, but not “funding the excessive spending (wages that increased by 100% in 2017), to the detriment of local development projects
  • Priority to the policy for the innovation field in Romania. OUG 79/2017 discourages the remuneration of researchers, by eliminating the income tax exemption.
  • Stimulating SMEs’ access to European funds through funding from the European Investment Fund (EIF) by equity type or guarantee type of financial instruments.

Romanian SMEs can access about EUR 3.3 billion available, which they can receive either in the form of equity investments from investment funds or intermediaries accredited by the EIF or through a loan guarantee mechanism.

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