SIMILAR ARTICLES

Alan Duncan / We cannot allow our societies to continue to be attacked and undermined

Global security is under threat. The system of international rules that has kept our citizens safe and our societies prosperous since the end of the Second… Mai mult

Q2 / Average monthly income per capita in Romania has risen to nearly RON 1,600: Changes in redistribution of family budget

Data published by INS for the second quarter of 2018 show that Romanians’ monthly incomes have reached nearly RON 1,600 per person. They were RON… Mai mult

Current account deficit flickers to red on dashboard

According to the data released by Eurostat, Romania’s current account deficit exceeded, in the second quarter of the year, the threshold of five percentage points… Mai mult

Strategic chemical industry: Romania, on top in import increase and ranking last in EU in terms of increase in exports outside single market

Data published by Eurostat show that Romania recorded the second highest annual growth rate in imports of non-EU chemicals from 2007 to 2017 (13.1% per… Mai mult

Economic growth in the pocket: Current accounts vs. saving accounts – 64% to 4.5%

  Rising incomes have fuelled consumption and, implicitly, the economic growth in recent years, but not the savings. Although a large proportion of the population… Mai mult

Gabriel Biris/ Not for investments, but for big whitening. Not for productivity, but for price increase

de Gabriel Biris 28.8.2017

Last week, the ministry debated another draft ordinance to amend the Tax Code.

Changes include the already promised tax exemptions for physicians’ incomes or dividends, as well as the increases in excise duties on gasoline and diesel to the level to which they had been increased in 2013 by the Ponta government (reduced in 2017 by the new Tax Code).

There are no other changes announced though: lowering the income tax to 10% and transferring contributions from the employer to the employee, with the corresponding adjustment of gross salaries. Little by little by little. Implementation in pieces, so that we always have something to work on…

Apparently, tax relief on dividends is not related to the increase in the excise duties… Let’s see why this is not the case.

We all know that PSD’s electoral program has been presented as the “Bible” of Grindeanu government, a government that needed to implement the program that was the basis of the huge success of PSD/ALDE in elections.

Budget Law and bizarre “offsets” between fuel excise duty and dividend tax

It tells us this is not the case, that the budget made by the PSD government has not considered (at least) one of the promised measures, namely the tax exemption on dividends. This thing is as clearly as possible if we look at line 0301 04 (dividend tax from individuals) where there are incomes estimated at 1,188,646,000 lei for 2017, and for the following years the estimates increase: 1,285,372,000 lei (2018), 1,389,887,000 lei (2019), 1,501,431,000 lei (2020).

How to raise budget revenue from the dividend tax if PSD/ALDE promised to eliminate it? The forecast for 2018-2020 should have been ZERO.

But if they considered the value zero, their deficit forecasts would not match, so they put the problem on hold wishing (hopelessly) that things would evolve in a way so that they would be able to adapt along the way. Which obviously has not happened …

So, to be able to obtain 1.3 billion lei in revenues in 2018, a backup solution had to be found. And it has been found quickly, as the same brains had found it once more around 2013: increasing the excise with 7c + VAT (the exchange rate being all the famous 4.74 lei/euro…). A measure that would bring to the budget 3.4 billion lei in 2018 and some more in the coming years (3.6 billion in 2019, 3.8 billion lei in 2020).

With a spin, there is also some extra money left (about 2 billion lei) in the budget …

Parenthesis: I do not know what the impact of the tax exemption for physicians is (it does not appear in the explanatory memoranda) and whether it has been included in the estimates for 2018-2020, but certainly the 10% income tax cut has not been considered… Let us just say that the revenues from the tax on salaries are estimated at 24,758,084,000 lei in 2017, let us also say that the tax on the average national wage (3.131 lei) would decrease from 418 lei (in 2017) to 61 lei in 2018 (-85% !!!) and this huge decrease will lead to an increase in the revenues from tax on salaries, according to the forecast from Law 6/2017, to 28,308,531,000 lei (that is + 14% !!!).

But we shall discuss that when the time comes if the time comes… So, coming back to our subject of tax exemptions on dividends and excise increases.

Why are dividends, actually, exempted from tax?

Normally, tax exemption on dividends is made in a country concerned with its interest to attract investment, stimulated by a friendly tax framework for shareholders.

But the way the dividend tax exemption is decided shows that the Government has entirely different intentions than attracting investment:

PSD lowered the dividend tax to the level existing in 2004 before the domestic quota of 16% has been introduced.

The 5% cut has been received so well that I hear that dividends declared in 2017 exploded compared to 2016 when the tax was 16%, probably also because of the mistrust that such a measure will resist the proof of time …

So politically speaking, PSD had already scored in an area where it needed to: entrepreneurs. It did not need to overemphasize …

The answer is elsewhere, namely in the Common Reporting Standards (CRS) – the automatic exchange of information that will start in force in 2018. Our ANAF will start receiving information from other states, including on the amounts placed in various companies in many tax havens. For some politicians or for their more or less discreet sponsors, that could create some disturbance…

How do we solve the problem? Instead of worrying about the way we tax the amounts placed by Romanian tax residents in tax havens (why would we do that, as we can also obtain money for the budget from the excise tax?), we exempt them from tax and that is all! We also solve the problem with the declarations: what is exempted does not need to be declared either…

Risks: temptation to move profits to tax havens

The main issue of this strange proposal (tax exemption on dividends) is not necessarily the free of charge “laundering” (without even the need for the amounts to be repatriated!) of the amounts placed in tax havens (obtained from activities including corruption).

The main issue of this measure is that it creates a stimulus for the tax base erosion in our country and not by multinationals… We move the profit to the tax paradise (zero tax on profit), we get dividends (zero tax) and that is all! We let the losers to pay taxes on salaries, social contributions, VAT, excise duties, etc

Remedies

Any problem has a solution, and in this case, the solution is already known; it is in the draft emergency ordinance made public by confidential sources last September. PSD cannot say that it does not know about it, as that is where they took the part with the transfer of contributions and the initial statement of patrimony…

To make it short:

  • Let us exempt from the dividend tax only dividends from Romanian companies (+ EU);
  • Ensure transparency on the holdings in weakly taxed jurisdictions. The solution which I proposed then (and included in the source text of the ordinance) was that the undistributed profits from companies in jurisdictions where the corporate tax is below or equal to 10% to be assimilated to dividends, which created the obligation to declare them and pay the tax in Romania;
  • Maintain the 16% tax on dividends from outside the EU.

This way we would not only tax the amounts hidden in the past but also eliminate the temptation to move profits there in the future.

But I do not have much hope that this will happen too soon… The interests of our political decision-makers are, unfortunately, totally divergent today from the national interest.

Mergeți în homepage ›

Publicat la data de 28.8.2017

Lăsați un comentariu


NEWS

Cluj-Napoca - only city in Romania that receives European funds for innovative projects

Only Cluj-Napoca is among the 22 European cities that will receive financing from the European Regional Development Fund (FEDR) for innovative solutions in addressing urban… Mai mult

Prime Minister Dancila dismissed 13 of 15 civil society representatives from Economic and Social Council. They were blocking legislation that did not gathered all opinions

Prime Minister Viorica Dancila has replaced 13 of the 15 civil society representatives in the Economic and Social Council (CES). Following a decision published on… Mai mult

West Quadrilateral / Four counties joined to directly access European money for major infrastructure projects

From right to left: Gheorghe Falca, Nicolae Robu, Ilie Bolojan. Emil Boc, Mayor of Cluj Napoca, misses Four mayors from the West of the country… Mai mult

Chamber of Deputies / PSD loses UDMR’s support for amending Offshore Law, draft returns to committees for a week

The plenum of the Chamber of Deputies decided on Wednesday to resend the Offshore Law to committees after a seemingly surprising request of UDMR leader… Mai mult

Government amended insolvency law. Guarantees given by Minister Teodorovici

The Government adopted on Thursday the draft Emergency Ordinance for amending and supplementing legislation in the field of insolvency, which provides among other things for… Mai mult

Romania ranked 7th in EU in terms of renewable electricity

Unlike the vast majority of the economic areas, in which we are at the bottom of the European ranking, Romania succeeded to rank 7th by… Mai mult

Resounding failure of PSD lobbying action in Brussels

There are clear signs that the lobbying action launched by the ruling coalition in Brussels in favour of the government in Bucharest will end with… Mai mult

MFP: Romania does not endorse a separate budget for Eurozone and rejects the idea of ​​taxing financial transactions

Romania does not endorse a separate budget for Eurozone and rejects the idea of taxing financial transactions, Minister of Public Finance Eugen Teodorovici said after… Mai mult

Finance Ministry wants to change rules for insolvency: state could also register claims after procedure is launched

Companies’ possibility to avoid paying creditors (and in particular the payment of tax receivables) simply by declaring their insolvency would be drastically limited, according to… Mai mult

Phil Hogan: Swine fever in Romania has an impact on neighbouring countries and EU trade in pigs

Prime Minister Viorica Dancila, European Commissioner Phil Hogan and Agriculture Minister Petre Daea The swine fever epidemics in Romania has an impact on neighbouring countries,… Mai mult

Infrastructure projects lost EUR 41.5 million following budget amendment. In what projects cuts have been made

Despite the assurances that Dancila government is concerned and intensely working on the road infrastructure projects, at the budget amendment the Transport Ministry has cut… Mai mult

European Parliament have decided to adopt in October a resolution on the rule of law in Romania

Leaders of the political groups in the European Parliament have decided to adopt in October a resolution on the rule of law in Romania. The… Mai mult

"Romania's buffers have deteriorated, the country is less prepared for a negative shock" - IMF will reduce economic growth estimate

Romania will be less prepared if the economy is hit by a negative shock, as the structural deficit has been deteriorated - IMF representative for… Mai mult

Premiere: CSAT asks Finance Ministry to amend amendment - session suspended until Government comes with a draft that does not affect budgets of secret services

President Klaus Iohannis suspended on Tuesday the CSAT meeting for discussing the budget amendment, as there was no consensus on the budgets of institutions from… Mai mult