On Possible Tax Changes in Romania

As we are already used to, summers arrival and this time, a new government coming to power (mostly with the same ministers, some moved from one ministry to another) seem to bring a new set of tax changes that will affect the Romanian economy. In this article we will turn our attention to the possible changes that have been recently rumored in the mass media. At the same time, we will briefly outline the main fiscal measures that are included in the Government Programme presented by the new Cabinet. We already know that the main cause that led to this new set of measures was the miscalculation of the State Budget for 2023, an issue that we also highlighted more than 7 months ago, when the current Minister of European Funds and Projects and former Minister of Finance Adrian Caciu had a more than optimistic outlook on the collection level of fiscal institutions. ?

What is Romania's current situation??

According to data presented by Eurostat, Romania is among the EU countries with some of the largest trade deficits and fiscal deficits, plus an accelerating growth of public debt. These data show that the value of imported goods and services is higher than the value of exported goods and services, as well as the fact that the government is currently spending more money than it manages to collect through taxes, which means it has to borrow to cover the expenditure. Who will pay for this borrowing in the medium to long term? Of course, mainly the private sector and citizens. We recall that accessing European funds is an available option, especially if we are talking about the NRRP (National Recovery and Resilience Plan), an opportunity that would help reduce internal imbalances. However, the current absorption rate (although it has risen to 78% in May 2023) is still behind countries such as Poland (89%), the Czech Republic (88%) or even Orban's Hungary (86%).?

The main rumors about the next set of tax changes concerned:?

• the abolition of reduced VAT rates;??
• the abolition of tax exemptions for workers in agriculture, construction, and the IT sector - although as far as the IT sector is concerned, Prime Minister Ciolacu recently said there would be no changes;?
• increasing the dividend tax rate to 10%;??
• taxing property at market value;?
• taxing property at market value, lowering the eligibility threshold for the micro-enterprise regime;??
• removing the possibility of deducting certain expenses from turnover or removing the cap on the health contribution (CAS) currently applied to self-employed workers.?

Main measures identified in the Governance Plan:?

If we turn our attention to the Government Plan presented by the new government, in the chapter reserved for fiscal and budgetary policies, we find measures such as:?

• simplification of VAT legislation and registration and reporting obligations;?
• the implementation of a mandatory electronic invoicing system to ensure more efficient and effective tax collection;?
• transposition of the provisions of the Global Initiative on the avoidance of base erosion and profit shifting;??
• granting VAT refunds and other claims of companies against the budget only after offsetting, according to the current provisions of the Tax Code, against the obligations of the same economic agents towards the budget;?
• increase the collection of excise, VAT, and customs duties;?
• revision of distortions and loopholes in tax legislation (it does not specify how);?
• reduction of VAT on separately collected waste;?
• ensure differentiated tax treatment according to the tax behavior of taxpayers and gradual application of specific measures by tax authorities.?

As we can see, from the whole analysis of the rumors about the next set of tax changes & measures identified in the Government Programme it is quite clear that Ciolacu's statements on the implementation of a progressive taxation system are not to be found here, even though he declared even after taking office that he maintains his opinion that large companies should pay a tax of at least 1% of the turnover and that he will continue the approach that at some point Romania will enter a progressive taxation zone.?

What's next??

Most likely, the new set of fiscal measures will be made public this week, after the ruling party announced that a decision has been postponed due to the talks the Romanian government is currently holding with the European Commission, where Romania has to convince Brussels that the measures it will adopt will stabilize the country's finances and put things back on track in terms of budget deficit reduction. Thus, the Commission should not cut European funds destined for Romania from the National Recovery and Resilience Plan or from the multiannual budget, even though our country is in the excessive budget deficit zone, above the 4.4% threshold set at EU level. From a legislative point of view, we will most likely see an Emergency Ordinance or a simple Government Ordinance that will implement the new set of tax changes into national law, followed by a submission to the Parliament for approval once it resumes its work on September the 1st.?