The American Chamber of Commerce (AmCham Romania) expressed on November 1 its concern over the impact of the recently announced fiscal policy measures both in terms of increased costs for taxpayers and budgetary sustainability.

The government debated amendments to the Fiscal Code in their first reading on October 26. The changes envisage an increase in the minimum wage as of next year, the transfer of social security contributions entirely to the employee and the replacement of the 16% profit tax for companies with annual turnover below €1mn with a 1% turnover tax.

“Moreover, this package of measures is proposed shortly after many fiscal changes were introduced, also adopted hastily, thus creating instability and confusion in the business environment with regard to the impact of such measures as well as with regard to their implementation procedure,” AmCham said.

Since taking power in December last year, Romania's ruling coalition has announced a series of fiscal changes. Foreign investors in the country have repeatedly complained this affects the predictability of the Romanian business environment. A survey by the Foreign Investors Council (FIC) recently showed that the confidence of foreign investors in the Romanian business environment is deteriorating considerably, with 90% of respondents saying the constantly changing legislation is affecting their business planning.

AmCham considers that both the frequency of the fiscal changes adopted through emergency ordinances and their financial and administrative impact lowers confidence in the economic governance and in the overall Romanian economy, consequently affecting the country’s competitiveness and capacity to attract resources needed for the economy’s sustainable growth.

“It is worrisome that the estimated budgetary deficit to be generated by the announced fiscal change will reach RON5bn in 2018 alone, and between RON3bn and RON4bn in 2019-2021, which will hinder the economic growth and puts additional pressure on the observance of the 3% budgetary deficit target. It is highly important to avoid any measures that could lead to additional tax increases and cuts of investments for infrastructure, health, education, research, etc, that are needed for Romania’s further economic growth,” AmCham said in a statement.

It also warned of the negative impact the transfer of social security contributions entirely to the employee will have on the labour market, by generating increases in salary expenses and by reintroducing discriminatory fiscal treatments between different types of taxpayers. 

AmCham warned that the measure might encourage migration towards other types of labour taxation, thus deepening the negative budgetary impact and creating additional pressure on the labour market. 

Regarding the tax on turnover for small businesses, AmCham considers it could have a negative impact on companies.

“Considering the structure of companies in Romania, with 80% of the companies with a turnover below €1bn, their activity could be negatively impacted, therefore, we believe that such measure can only be optional. A comprehensive analysis is needed in order to evaluate the risk of having new insolvencies within this category of companies and the impact on the collection of state budget revenues,” AmCham said.