With a new Fiscal Code rollout this year, the second one since 2004, investors say that although the new piece of legislation is more “pro-business” and contains some tax cuts, companies still struggle to talk with the tax administration agency ANAF, itself undergoing a massive modernization program.
“Restructuring tax provisions in the main laws on tax compliance was a much-needed action. In the 10 years since the last consolidation of tax legislation, more than 100 amendments were made. Thus, the laws required restructuring so that taxpayers would better understand their liabilities and, at the end of the day, so as to enhance voluntary compliance,” Alin Chitu, tax partner at Tuca Zbarcea & Asociatii Tax, told BR.
This point of view is largely shared by representatives of large foreign investors present in Romania.
The administrative burden is still in place, despite new Fiscal Code, say Austrian investors
For instance, Rudolf Lukavsky, commercial counselor at the Austrian Embassy in Bucharest, told BR that the new code has been welcomed by Austrian firms as it clarifies some provisions, though it’s not enough.
“Due to the high number of changes, additional issues were raised which need solutions. A guideline is needed in order to implement the new provisions and additional clarifications are eagerly expected. As foreign investors do not usually balance their decisions regarding a country’s attractiveness on one or two factors, one has to see the broader picture,” said Lukavsky, who added that infrastructure, the skilled workforce and political stability are other factors that are taken into account.
“Here, Romania still has room for improvement. Take for example the huge administrative burdens which have not been tackled by the new fiscal legislation at all. Moreover, investments require long-term planning and strategizing, which is particularly difficult if the economic framework is changed as frequently as it is in Romania,” said the Austrian official.
Right now, companies are hoping that the new Fiscal Code, the Fiscal Procedures Code and the World Bank-backed ANAF reform will bear fruition and make it easier to do business.
“Even if the Fiscal Procedures Code still needs to be improved, the new tax code is pro-business, clarifying technical issues that previously weren’t sufficiently regulated, bringing more transparency and stability to the business environment,” Ionut Simion, vice-president of AmCham and coordinator of the taxation committee of the organization, told BR.
AmCham has over 400 member companies, which have created 200,000 jobs and around USD 20 billion worth of FDI in Romania.
However, Simion stated that the government should make sure the budget deficit doesn’t run out of control as the economic growth is accelerating mainly due to higher domestic consumption.
“With respect to the newly adopted fiscal code, the reduction of taxes will significantly impact the government deficit in the years to follow. According to the Fiscal Council, the estimated impact of the fiscal reform amounts to approximately 2 percent of GDP in 2016. The fiscal reform targeted, to a significant degree, measures that stimulated increase in consumption (by decreasing indirect taxes like VAT quota or excises,) and as a result, in the short term, it is expected that consumer prices will show a decreasing trend,” added the AmCham official.
A signal of caution regarding public finances also came from the Foreign Investors Council, which has 120 member companies that account for around two thirds of the total stock of foreign investment in the country.
“This is important to investors because they are mainly interested in a stable, transparent and predictable fiscal environment. In this context, the FIC encourages authorities to maintain budgetary discipline to avoid macroeconomic imbalances that would require painful fiscal adjustments in the near future,” representatives of the organization told BR.
Some of the changes that have been welcomed by investors include the tax rate cut for dividends from 16 percent to 5 percent and the changes in the regime of microenterprises. Starting this year, firms with a turnover of up to EUR 100,000 will be considered microenterprises. Up to now, this threshold was set at EUR 65,000.
The increased tax deductibility for voluntary social expenses and the elimination of the construction tax, starting with 2017, are also welcomed, according to Lukavsky of the Austrian Embassy.
Key fiscal measures yet to be approved
There are still some tax measures that have been requested by foreign investors for years now, but still haven’t been turned into legislation.
“In terms of measures with regard to the tax legislation, AmCham Romania signals the need for three key measures to be taken by relevant stakeholders: fiscal consolidation across groups of companies, capping social contribution to a maximum of five average gross wages, and elimination of the penalty for not declaring fiscal obligations as it is now stipulated in the Fiscal Procedures Code,” said Simion of AmCham.
Furthermore, the FIC representative suggested that the earlier scrapping of the special construction tax would help companies, which are still struggling with the fiscal burden.
“FIC carries out a biannual business sentiment index survey and the preliminary results of the latest round indicate that investors still consider the fiscal burden to be very high and we believe this is mostly driven by the burdensome documentation and new tax reporting requirements, especially on the VAT side. FIC would also like the concept of voluntary disclosure to be included in the Fiscal Procedures Code. Last but not least, FIC believes a more constructive and balanced dialogue is necessary between ANAF and taxpayers,” said the organization.
From the Austrian perspective, Lukavsky says that companies are still finding it hard to get feedback from the fiscal authorities.
“As mentioned before, overall concern exists regarding the still high bureaucracy and the time necessary to initiate or fulfill certain tax procedures. Response times for questions to be answered for VAT-registration in Romania (form 088) as well as other fiscal declarations were even extended instead of being reduced,” stated Lukavsky.