Romanian businesses to pay higher taxes as of 2018 if the government introduces tax on income rather than profit.
The new programme of the ruling coalition formed by the Social Democratic Party and the Alliance of Liberals and Democrats provides that Romanian businesses are to pay their taxes based on their turnover rather than their profit. This measure is expected to come into force on 1st of January 2018. Big companies will no longer pay a 16% flat tax, as is currently the case, but a 1, 2 or 3% income tax.
The governor of the National Bank Migur Isarescu said the institution he runs would analyse the measure carefully when the final decision is taken. He emphasised that the proposal to introduce a tax on turnover rather than on profit did not come from any Central Bank expert:
"Turnover tax exists in many countries. I'm not saying it's good thing or a bad thing. The ideas attributed to the Central Bank can be found in any economic policy textbook, so they don't necessarily have to come from someone working for the National Bank. What's important is who embraces theses ideas, in what form and how they put them into practice."
Prime minister Mihai Tudose is reportedly in favour of turnover tax, provided it is levied gradually and only on certain types of businesses, government sources have said. The same sources say the prime minister is waiting for the result of the simulations conducted by the finance ministry before making a decision. Experts, however, say the measure would be disastrous for the business environment and generate a wave of negative consequences. Moreover, they warn that the application of differentiated turnover tax may lead to competitive discrepancies between countries that will affect the cost of end products, with Romania thus risking the activation of an infringement procedure against it.
According to an analysis carried out by the Association of Financial and Banking Analysts in Romania, the effects of a possible turnover tax will be a heavy burden for most businesses in Romania, particularly those with incomes in excess of 1 million euros, 60% of which are with foreign capital. According to this report, sectors such as distribution and retail sales, which traditionally see high turnover but low profit margins, will be most affected by the new measures. This is the first impact study of the new tax measures, considering that neither the government nor the authors of the governing programme of the ruling coalition have produced a document of this type so far.
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