Government switches fire from business community to tax the rich

Increased taxes for people who own more than one house or high-performance cars is the government’s alternative to squeezing the local business environment for its economic re-launch plan.

Dana Ciuraru

At the beginning of this month, Emil Boc’s government gave the green light to an emergency ordinance to modify the Fiscal Code in order to increase property and car tax by up to 300 percent in some cases.

It is an unpopular measure – one which specialists say will further decrease people’s purchasing power, in a country in which VAT has increased practically overnight from 19 to 24 percent – but one in line with President Traian Basescu’s own domestic agenda.

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“Any income, including the minimum pension and unemployment benefit, should be taxed,” said Basescu recently on television. He referred, among other revenue streams, to social security contributions, which he said are withheld directly from employees’ incomes and not taxed.

The new measure should make it impossible for those who own additional properties or sports cars to avoid the charge.

“Emergency Government Ordinance no. 59/2010 is certainly unpleasant – to say the least – for those taxpayers who own several buildings and/or powerful cars, but it is clearly and unequivocally drafted,” Alexandru Rusu, partner with bpv Grigorescu law firm, told Business Review.

One possession on which the taxman is homing in is luxury cars. The executive is planning to boost the state coffers with contributions from the drivers of vehicles with high cylindrical capacity, such as for instance the Audi A6 or Opel Antara.

New tax equation for buildings

Lawyers say that raising tax on buildings is not a new concept and also featured in the old version of the Tax Code.

However, under the old regulations, an important distinction was made: the higher rate was applicable only to private individuals who owned more than one residence – defined as a building where the owner actually lives.

“This distinction is no longer stipulated under the new regulations: currently the increased tax applies to any private individual who owns more than one building, regardless of its use or designation,” explains Rusu. In his opinion, it is important to clarify the notion of “a building” under the Tax Code.

It is defined as any construction above ground or underground, regardless of its name or function, a construction that has one or several rooms that could shelter people, animals, object, products, installation, equipment and the like, of which the main structural elements are the walls and the roof, regardless of the construction material. A room represents a space within a building.

If a building is co-owned by two or more private individuals, each of them owes a tax corresponding to the space located in his or her part of the building.

“Let’s assume that a private individual owns building A, half of building B and one third of building C. The order in which the building were acquired is A-B-C. In this hypothetical case, our owner will owe the regular tax for building

A, the tax for half of building B increased by 65 percent and the tax for a third of building C increased by 150 percent,” Rusu tells BR. He added, “As regards the tax on land, I believe that it remains the same as a protective measure for farmers, who are now facing extremely difficult conditions.”

However, the government’s success in collecting the taxes – which in the past has not been its forte – is another kettle of fish entirely.

dana.ciuraru@business-review.ro