Private sector fears increase in fiscal burden following cut in labor tax

With social insurance contributions (CAS) payable by companies to be cut by five percentage points from October, investors are concerned that more taxes could be rolled out next year.

Mihai Bogza, president of the Foreign Investors Council (FIC), said the cut in CAS would have a “marginal effect” in the last three months of the year.

“In 2014, prior to the cut in CAS, we had an increase of taxes – several increases – such as the ‘pole’ tax and the hike in excises,” said Bogza last week, quoted by Mediafax newswire.

He suggested that companies could decide to invest more and increase employment if the cut in CAS were maintained for longer, while other taxes remain unchanged.

“We fear that next year the state will take with two hands what has been given to us in the last three months,” said Bogza, who added that there is a risk the government could decide to increase the tax burden to compensate for lower revenues to the budget due to the cut in CAS.

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Scaling back the CAS will generate an estimated loss of EUR 191 million in budget revenues this year and another EUR 1 billion in 2015.

Meanwhile, Florin Pogonaru, president of the Association of Romanian Businesspeople (AOAR), said that taxes would not go up because of the reduction of CAS.

“Until the CAS can generate budgetary imbalances, we have to look at the other factors that are actually creating these imbalances. We have to focus on collection, on reducing state waste,” said Pogonaru, quoted by business daily Ziarul Financiar. He added that this measure was necessary to stimulate the business environment.

Coalitia pentru Dezvoltarea Romaniei (CDR), the association comprising the main business advocacy groups in Romania, said this summer it supported the five-percentage point reduction in social insurance contributions (CAS) as it would help the economy.

The CDR said, however, that the increase of the tax take and a more efficient budget allocation should be pursued by authorities to make the measure sustainable.

The additional funding generated by the cut in CAS could be used for new investments or to increase employees’ wages, according to representatives of companies.

Ovidiu Posirca