Several associations representing major investors in Romania have spoken out against the updated governing programme presented by the ruling Social Democratic Party (PSD) June 29. 

The changes, announced by Romania’s new Prime Minister Mihai Tudose, will bring in significant changes to the Fiscal Code starting from next year. The novelties include switching from the the current flat 16% income tax to a tax on turnover for companies, the introduction of a solidarity tax for high income earners and substantial increases in the minimum wage. 

Radical changes to Romania’s fiscal policy set out in the new government programme generate turmoil in the business climate and severely affect stability and confidence in the Romanian economy, the American Chamber of Commerce (AmCham Romania) said in a June 30 statement issued after a press conference by representatives of AmCham and other business associations. 

“Both the announced hasty adoption, without consultations and impact assessments, and the potential economic impact of the proposed measures, reverse the country’s macroeconomic performance, and isolate Romanian from an investment perspective,” AmCham said in the statement.

AmCham also reiterated that the introduction of the global tax for individuals is not feasible, with the poor IT infrastructure of the tax collection agency ANAF making its implementation and application impossible.

“The new government has announced fiscal changes directed against the business environment and posing a real threat to the stability and predictability of economic policies,” commented the the Romanian-German Chamber of Commerce and Industry (AHK Romania). 

“The proposed fiscal model is detrimental to Romania and disfavours all companies, whether national or multinational, leading to loss of attractiveness of this investment location for German companies. … In the medium term, these measures could lead to job cuts and investment, which will bring other negative consequences, for example the well-trained workforce exodus, a trend from which Romania is already suffering,” the AHK Romania statement added. 

19th century style taxation 

AmCham stressed that it considers the replacement of the profit tax with a turnover tax “inappropriate”, since it would make Romania the only EU member country to apply such a taxation system for all taxpayer categories. “Such mechanism is generally used as a tax simplification procedure for startups and small businesses. Moreover, the proposed measure conflicts with the new EU Directive currently under public debate, Common Consolidated Corporate Tax Base – CCCTB, thus placing Romania outside the mainstream EU countries,” the statement said.

Representatives of other business associations also criticised the planned turnover tax, with fiscal consultancy expert Angela Rosca calling it “a tax of the 19th century”.

The plans to introduce this tax “shows the incapacity of the Romanian authorities to collect modern tax, such as that on profit, applied in all developed countries and in the best developed countries,” said Rosca, according to Profit.ro.

“These things reflect real desperation regarding collection and the situation of the budget deficit,” said Florin Pogomaru, the head of the Coalitia pentru Dezvoltarea Romaniei (Coalition for the Development of Romania). 

Business representatives claimed that such taxation would discourage any start-up which needs time and major investments to reach profit.

Pensions confusion

Further confusing things, the new finance minister initially said the second pillar pension fund would be abolished, but later in the day denied the information. The announced changes put pressure on the exchange rate and the bourse indices.

“With regards to the removal of the pensions II pillar, even if it remains a statement, is a dangerous precedent of government interference in the private sector, which triggers economic, financial, confidence and reputation damages for Romania, especially at the level of the capital market in a very important moment for its development,” AmCham commented. 

“Last but not least, in our view, this is a practice that does not belong in a free market economy, as it breaches the fundamental private property right.”