Government revives regressive taxation initiative

The government aims to drop the 16 percent flat tax and replace it with a three-tier taxation system, according to the budget-fiscal strategy 2014-2016, published by the Ministry of Finance.

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According to the government, the regressive tax will apply for wages with fiscal deductibilities at rates of 8 percent, 12 percent and 16 percent, depending on the level of the wage.

“This is in the government’s intention to implement it, provided that budgetary conditions allow it, to reduce the taxation especially on the labor force, because we all know there is a problem, which has been signaled by all entrepreneurs, that this taxation is excessive in Romania,” said Dan Manolescu, state secretary at the Ministry of Finance, during the Romanian Business Leaders Summit organized last week in Bucharest.

“We have a 16 percent flat tax but there are also other aspects regarding the taxation of the labor force, such as the capping system, the deduction system, and of social contributions, which make this taxation excessive and this measure is proposed for analysis.”

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Prime Minister Victor Ponta said the flat tax rate remains unchanged for companies and that the lower rates should apply for low earners.

Dragos Anastasiu, president of Eurolines, the transport and tourism group, commented this move should in theory support the increase in domestic consumption.

“The only matter is to be predictable because all the measures approved over night are aberrant,” he told BR. He said this measure should be implemented next year and done in a predictable manner.

According to the strategy, the government should also roll out a five percent reduction in the social security contributions starting July 2014.

Klaus Iohannis, first-vice president of the National Liberal Party (PNL), commented the differentiated tax system may lead to a loss of several billions of RON in uncollected funds to the budget.

“At some point, we talked about the entry in a regressive taxation, this I believe is the right term and the less you gain the less you pay in taxes. The conclusion is not the increase of the current rate of 16 percent, but its reduction,” said Iohannis, quoted by Mediafax newswire.

Ovidiu Posirca

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