CDR:Romania could attract more investment if labor tax is cut

The 5 percent reduction of social insurance contributions paid by employers could see companies allot more resources towards investment or for increasing wages, says Coalitia pentru Dezvoltarea Romaniei (CDR), an association comprising business advocacy group such as AmCham and the Foreign Investors’ Council (FIC).

The government said the cut would be enforced starting October 1, although it has not been vetted by the International Monetary Fund. This reduction will be operated on the social insurance contribution that is due for the public pensions system. It is estimated to cost RON 850 million (EUR 193 million) in lost revenue to the state budget in the last three months of this year.

“The labor taxation level certainly is a competitive disadvantage of Romania as an emerging economy compared to existing systems in most of the (e.n. EU) member states,” said the CDR in a statement.

The labor taxes paid by the companies operating in Romania as share of their profit account for 31.5 percent, according to the Paying Taxes 2014 report of the World Bank and PwC. It stays at 26 percent in Poland and 21.8 percent in Germany.

The coalition said this measure could also enhance the purchasing power of employees and improve the labor occupancy rate in Romania.

“The effects of the high labor taxation at the level of employers is clearly manifested in the local business environment through the reduced labor demand and even worst by a surge in the informal labor market,” added the CDR.

There are some 1.5 million people working informally in Romania, according to estimates by the Fiscal Council, an independent think-tank.