Investors and brokers are unsure whether the taxes they will pay represent a percentage of their gross or net earnings and whether transaction losses are deducted from the tax or not.
“This situation severely affects investors' perception of the Romanian fiscal system and their trust in the capital market,” read the BSE press release.
The stock exchange reacted to disagreements between the National Agency of Tax Administration's (ANAF) position on taxes and provisions in the Fiscal Code and decided to “attract attention to the peculiar situation in which an investor who had losses gets to credit the state.”
“We only request that the Fiscal Code is applied and taxes are calculated at the end of the year as a percentage of net gains. Taxes should also be estimated based on how long the respective stock was part of the investor's portfolio and by applying to that 1 percent or 16 percent tax,” said Dan Paul, member of the BSE Council and the head of the Brokers' Association.
The public finance minister had previously declared that taxes should be a percentage of gross gains, without there being a deduction of transaction losses. The Fiscal Code recognizes stock exchange losses and allows for them to be deducted from the income tax.
Finance minister Sebastian Vladescu said stock exchange investors had no reason for complaint since they paid no taxes last year. “The capital market had an advantage. Investors paid nothing last year, so the morality or immorality of the taxing method cannot be discussed,” said Vladescu.
The minister added that the taxing order dates back in 2006, but investors had not questioned it so far. “Legally, things are clear. An order annulling the previous one could not be approved,” Vladescu said.
The strife went beyond the minister and the stock exchange. BSE president Septimiu Stoica responded to statements from the National Security Commission (CNVM) that the BSE should have informed the CNVM of its decision. “First of all there is no legal provision forcing the BSE management to inform the CNVM about transaction hours. Secondly, the CNVM learned about our intention just like everyone else,” said Stoica referring to the press release BSE issued on Wednesday.
Stoica said brokers might sue ANAF if uncertainties were not clarified, “especially since their effect is to drive out stock exchange investors, which are not very numerous to start with.”
“Foreign investors know how the stock exchange works and pay attention to what is going on.
There is a financial frame defined by the Fiscal Code and we do not intend to change it. Foreign investors that had faith in the Romanian economy in 2006 will keep their faith. I am glad that investors have incomes that can be taxed,” the minister
This is the second blow BSE has taken this month. Last week, the stock exchange was attempting a comeback from the slight slowdown induced by political turmoil two weeks ago.
As the perspective of political crisis and possibly early elections loomed, investors remained on hold which led to a diminished liquidity and a drop in the BET index, which measures the BSE's overall performance.
“The capital market needs political, legislative and fiscal stability. It is evident that recent political arguments did not have a positive influence on the capital market, but a negative one. However, I do not consider this negative influence to be very significant,” said the general manager of Intercapital Invest, Razvan Pasol.
He added that, generally, “The stock exchange is doing fine: the BET index measures +4.55 percent since the beginning of the year and BET-FI [the index measuring the average performance of financial investment companies, SIFs] is at +1 percent. These are positive performances,” said Pasol.
Rating agencies agreed that political turmoil does not jeopardize the country rating. Andrew Colquhoun, Fitch agency director, said the country's score could be changed only if it generates fluctuations in the Current Account Deficit included by the outflow of foreign investors.
Analyst Kenneth Orchard of Moody's said a slight worsening of the political climate comes as no surprise now that the country has joined the EU.
“There are many factors that influence the stock exchange, but the most important is by far Romania's accession to the European Union, which is much more essential than any transient political scandals. The accession is a positive factor and its effects will be felt gradually in the next years,” said the Intercapital Invest GM.