Tudose government amended on Wednesday the Tax Code by three government ordinances: the change with the greatest impact on the business environment was the decision on the VAT split payment, mandatory as of 1 January 2018.
The draft has been adopted despite the negative reactions of the entire entrepreneurial community in Romania, as it affects the honest business environment before stopping fraudsters.
The VAT split in the economy is a premiere in the EU business environment: it is only applied in Italy and only in the commercial relationship between companies and the state or public authorities.
Another ordinance on amending the Tax Code has been approved in a different form than resulted from the public debate, as the PSD-ALDE government forgot to honour the commitment to eliminate the tax on dividends.
Facing a major financial hurdle, the Government has also introduced on Wednesday the extra excise on fuel and increased taxes on mineral water.
The Government has also introduced a limitation of the expenses represented by the alienated claims in the calculation of the corporation tax, to 30% of their value.
A measure that would have really contributed to the correct assessment of the trade sector in Romania – the obligation to use electronic cash registers – has been postponed.
Split VAT, imposed despite general warnings
The Minister of Finance came to the Government meeting with the necessary documentation for the adoption of the draft on VAT split, which Tudose government approved.
According to the document, the new rules of the VAT payment scheme are mandatory as of January 1, 2018, and companies have the optional to voluntarily apply the scheme starting October 1. Companies that apply this scheme in advance will benefit from a 5 percent reduction in corporate tax.
(Download HERE the VAT ordinance)
Compared to previous versions of the draft discussed with the business environment, the document adopted contains the provisions that a special VAT account can be placed on forced execution not only for the payment of VAT due to the state budget but also for other outstanding budgetary obligations existing in the records of central tax authorities.
The Ministry of Finance insisted on adopting this draft, motivating that the budget will thus receive two billion lei additionally each year.
VAT evasion accounts for between 3-4% of GDP and the European Commission recently drafted a set of proposals to reduce this percentage and the “VAT split” was not included on the list of measures indicated by Brussels.
Business organizations have put forward numerous arguments against the adoption of this draft.
Essentially, companies are required to open separate VAT accounts and pay the amount of this separate tax to the business partner’s special account. Companies can make payments from these accounts only with the previous approval of the tax authority.
Government gave up elimination of dividend tax
The draft that amends the Tax Code no longer provides for the elimination of the 5% dividend tax, according to the version discussed in the Government meeting on Wednesday. Tax incentives for owners who cultivate farmlands also miss from the document approved.
In August, the draft launched for public debate contained the decision to eliminate the dividend tax as of January 1, 2018.
The measure has been announced by PSD even since last year and has been included in the government program.
Also, the initial draft stipulated that the owners of worked agricultural land will be exempted from the tax on the land, while, the tax on agricultural land not worked for two consecutive years will be increased by the local council by up to 100 lei/hectare, starting with the third year.
The version of the ordinance included on the Government’s agenda on Wednesday no longer provides for these measures.
(Download HERE the ordinance amending the Tax Code)
According to the Ministry of Finance’s calculations, the elimination of the dividend income tax would have a negative budget impact of ROL 1.3 billion in 2018.
The draft also provided for the tax exemption on income from dividends received from Romania by foreign nonresident natural persons and legal persons residing in an EU member state or in a state with which Romania has an agreement on the elimination of double taxation.
The 5% tax rate applied to the dividend income is maintained for nonresident natural persons and legal persons residing in other jurisdictions.
In search of funds for budget: extra excise on fuels returns, taxes on mineral water rise
Extra excise on fuels will be introduced in two steps, as of September 15 and October 1, the Government decided on Wednesday.
There will be an increase of 0.16 lei/litre at each step announced for all types of fuel. Minister Ionut Misa states that this way „a shock in consumption” is avoided on the market.
The official explanation for this decision is: „bringing the tax share in the fuel market prices close to the average values identified at the EU level„.
Extra excise has been introduced in 2014 by Ponta government, the value was set at 7 eurocents per litre.
The extra excise on fuel had the declared purpose of financing road infrastructure projects but the money collected later came to the state budget and offset the effect of decisions on decreasing some tax and contributions, such as CAS.
Also in the government meeting, the taxes for prospecting, exploration and exploitation of mineral water springs have been increased by a significant percentage but remained at rather low levels. It should be noted that the approved ordinance requires the use of a special stamp on bottles of water for selling, without a special stamp fee being established.
Contrary to the spirit of the ordinances approved on Wednesday, the Government has decided to extend the term as of which the general use of the electronic cash registers becomes mandatory.
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