The Romanian Government and Local Taxes

The executive in Bucharest has passed an ordinance allowing town halls to raise taxes and duties by 16%.

Mihai Pelin, 10.01.2013, 13:31

Prime Minister Victor Ponta has warned local authorities that unless they raise taxes, they will have to do without government support.

The Romanian government has passed an ordinance allowing the local authorities to decide whether to keep taxes and duties at last year’s level or raise them to adjust to the inflation rate in the past three years. In December 2012, the executive issued a decision under which local taxes are to be raised by 16% in 2013, with town halls being allowed to amend the resulting sum within a 20% margin.

The new ordinance stipulates that it is the task of the local authorities to decide whether to raise or lower taxes and duties in 2013, through an exception to the Fiscal Code. Until now, it was the government that decided on cutting or raising the taxes. The local authorities must make their decision within 20 days of the enforcement of the government ordinance. On the other hand, local councils have to assume responsibility if they decide to keep taxes at last year’s level. Prime Minister Ponta has cautioned those who aren’t in favour of raising taxes that they will no longer be entitled to additional budget funding.

Victor Ponta: “The 16% some mayors are willing to collect will go to the local budget. Unless taxes are raised, this amount will not be paid by the state budget, because the state budget pays for pensions, salaries and make public investment. What I’m talking about is local autonomy. If the mayors opposed to raising taxes can do with last year’s budget, that’s very good. There are probably a few rich communities that can do this. However, adjusting taxes to keep up with the inflation level is natural and has always been done.”

Most town halls have initially announced they won’t raise taxes. Some have operated the 16% raise, while others prefer to wait for the new ordinance to come into effect. One of the cities where the raise has been operated is Sibiu, in central Romania. The city’s mayor Klaus Johannis believes the entire concept of taxes and duties is wrong and that these should be set by the local councils.

According to the authorities, in the cases in which the city hall has operated the raise and then reconsidered its position, taxpayers are entitled to ask for their money back. The minister for public administration Liviu Dragnea says town halls that prefer to keep taxes at last year’s level will next year have to raise taxes in keeping with the inflation rate. The highest local taxes are paid in the country’s central regions, while the inhabitants of Romania’s big cities are paying the highest property taxes.