Fiscal code, between normality and financial collapse

The Romanian Finance Ministry is working on a law to alter the fiscal code, a document that will design the fiscal policy of Romania starting with 2007. Talks with business environment representatives are followed by further discussions with the Government, and by the end of the month the draft will be sent to the Parliament for endorsement.

Former Finance minister, social-democrat Mihai Tanasescu and chairman of Senate Budget Commision, liberal Varujan Vosganian tried to clarify for Hotnews readers the implications of the modifications of the code.

The change of the Fiscal code relies on the following principles: the expansion of the taxable basis, the maintenance of the flat tax to 16 percent and of the VAT to 19 percent.

However, this policy was criticized by the European Commissioner for Economic and Monetary Affairs Joaquín Almunia, who drew attention to the fact that Romania will face difficulties in agreeing collected taxes with the necessary Budget revenues.

Tanasescu believes that Romania will face a financial collapse in 2007, when it is expected to become an EU member, due to the financial policy promoted by government Tariceanu that will yield a serious budget deficit following the drop of the revenues to the State’s budget.

Tanasescu accused the „so called reform” that created an unstable business environment in 2004-2006 and instead of multiplying revenues sources it led to a drop in earnings.

However, Varujan Vosganian says that the changes operated within the last two years will produce long term results for the business environment taken into consideration the fact that they will enter into force only in 2007, making Romania more attractive for foreign investors.

Tanasescu considers that by keeping the flat tax to the same level will disadvantage the citizens with modest income, who benefited of a low increase of revenues, compared to persons with medium and high income.

„The Government moves the money from one pocket to another, from the State’s to the citizen’s, instead of collecting more money for the Budget in order to provide sufficient funds for Romania to move on. This money will not suffice for sanitary reform, infrastructure for Education.”

Vosganian agrees that the State’s budget is less rich but says that entrepreneurs and employers benefited of a discount of 6 bln Euro due to the flat tax.

Tanasescu believes that the reduction of the taxes to a flat value will create a deficit, despite the nominal values exhibited by the Government, whereas Vosganian maintains that the revenues are increasing with at least 7-8 percent, as reports show for the first quarter of 2006.

Senator Vosganian explains that only the very low taxes will be increased and also luxurious goods such as cars, land, alcohol and cigarettes.

Mihai Tanasescu warns that EU is concerned for the countries that apply a fiscal dumping policy that would have negative effects to be felt in the following years. Vosganian is aware that low taxes create discomfort to European officials because in such case Romania will need more money from EU.

However, Romania is a poor country and taxes should be low, attracting foreign investors in the same time.

According to the liberal senator, the profit tax is lower in Cyprus, Ireland and Baltic countries, and the dividends are much below the European average. Even if an increase occurs, the taxes will remain lower than in EU.

In Romania, environment tax is 0.3 percent compared to 3 percent in EU, hence it will be increased.