Fiscal relaxation measures set forth by the Romanian government

Romania is one of the European countries with the lowest tax-to-GDP ratio, that is below 32%.

The collection of budget revenues was rather modest last year, just like in the previous ones.

For more than a decade now, Romanian governments have come up with proposals to increase revenues by improving the rate of tax collection, but none of them have been actually implemented.

On Wednesday, the current Government announced an avalanche of fiscal relaxation measures, scheduled to come into force in 2016.

The reduction of the VAT, of contributions to the social security fund and of the flat tax are just three of the over 600 amendments to the new Tax and Tax Procedure Codes.

As regards the reduction of the VAT, which now is 24%, it will be done in two stages: a 4% drop next year, and another 2% drop starting 2018.

For basic foodstuffs, such as meat, fish, vegetables and fruit, the VAT will be 9% starting in 2016, just as it is today for bread and pastry products. On the other hand, effective as of 2017, contributions to the social security fund will stand at 7.5% for employees, as compared to 10.5% as it is now, and 13.5% for employers, as compared to 15.8% today.

Finance Minister Darius Valcov says that easing tax pressure will encourage legal employment, given that the Romanian labour tax system is quite discouraging. In order to boost investment, the Government proposes the elimination of taxes on constructions and dividends. Also, the flat tax will be reduced to 14%, starting 2019.

The Romanian Finance Ministry has also proposed lower excises on diesel fuel by 20%, on lead-free gasoline by 18.6% and on beer by more than 15%. Moreover, excises on coffee, jewelry and vehicles with a capacity of over 3000 cubic centimeters would be eliminated altogether.

On the other hand, according to the new Tax Code, all individuals with income shall pay contributions to the social security and health insurance funds, and taxes for micro-enterprises, just like home and land taxes, will grow.

The new draft tax code has been termed by specialists as 'revolutionary', but critical voices have already been heard.

The Fiscal Council warns that such changes, in particular those regarding the VAT, usually have a strong negative impact on budget revenues.

The opposition, too, believes that this relaxation is not credible, since the Social Democratic Party, which is now the ruling power in Romania, has introduced new taxes, has suffocated the business environment and reduced citizens' purchasing power.

Liberal MP Eugen Nicolaescu claims that his party will propose a thorough rethinking of the tax system, for the business environment to ensure an annual economic growth rate of at least 5%.

The new tax code will be under public debate for a month, and then submitted to Parliament for approval.

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