New reactions to the Fiscal Code’s revision

The Romanian Government passed on Friday and emergency decree bringing significant changes to the Fiscal Code, in spite of warnings coming from the business sector.

Ştefan Stoica, 24.12.2018, 13:05

Banks and energy companies, representatives of the business circles, associations of Romanian and foreign investors and economic analysts reacted last week against the plan announced by the by the Government made up of the Social Democratic Party (PSD) and the Alliance of Liberals and Democrats (ALDE) to impose additional taxes on banks, energy and telecommunication companies and funds that administrate private pensions. The Stock Exchange plummeted on Wednesday and the main index saw its sharpest fall since the economic crisis of 2008.

In spite of these reactions the Government has passed the emergency decree, with slight adjustments as compared to its initial version. Among the measures adopted are capping the price of gas and electricity for the next three years for domestic consumers and lowering commission to private pension funds from 2.5% to 1%. Another measure concerns taxation of financial-banking institutions according to the evolution of ROBOR, the reference indicator used by banks in lending, which, at least in the past year, has fluctuated to the detriment of both companies and natural persons. In favour of this measure Minister Teodorovici has invoked documents from the Romanian National Bank and of the European Central Bank indicating incoherent bank practices as to the population and the real economy. Romania, Teodorovici explained, has the second-highest government bond exposure in the European Union. Also, profit margins in Romania are quite attractive, among the highest in the EU, while bad debts are often transferred to companies in the same holding and sold for much more than the price paid for making them.

These are not all the fiscal measures that triggered the discontent of the business sector. The privately managed Pension Pillar II becomes optional. Romanians cannot withdraw their money from the fund, as proposed initially by the Finance Minister, but they can opt to transfer it to the pension fund managed by the state, provided they contributed at least 5 years. Contribution to the Pension Pillar II has been kept at 3.75% but commissions have been reduced, which affects private funds. Their administrators say the new measures will produce negative effects in 6 months at the most.

From the opposition, the save Romania Union (USR) has asked the Ombudsman to challenge in the Constitutional Court the controversial emergency decree. USR says it will trigger a huge crisis that will leave all Romanians, working both in the public and private sectors, poor. According to USR, a first effect will be an increase in the price of energy and telecommunications, a drastic drop in consumption and investment which will force the Government to resort to the IMF in order to be able to pay salaries and pensions.