New Year’s resolutions for managers and entrepreneurs: should taxes go up or down in 2020?

Newsroom 05/02/2020 | 16:17

When it comes to the relationship with the state, entrepreneurs and managers of Romanian companies fall into two groups: those who want a stronger government and are waiting for it to intervene and solve their problems, and those who want to be left alone. This cleavage seems stronger at the beginning of 2020 in terms of expectations regarding taxes in the new year.

By Claudiu Vrinceanu

 

The business environment’s views at the end of last year and in the beginning of 2020 are divided into two categories, so we recognise two different perspectives: some managers and founders explicitly say they want tax reductions, while others may accept tax increases as long as the government uses them to launch projects and investments in education and healthcare.

 

The business environment no longer needs tax cuts

Therefore, after a period with many uncertainties and fiscal surprises that influenced the business environment, local entrepreneurs and managers of multinationals prefer stability, may even agree with some tax hikes and understand that the public budget will be difficult for the government to manage in 2020. “We do not want tax breaks. A reduction in taxes will create pressure on the public budget in 2020,” said Felix Patrascanu, the CEO of the largest courier company in Romania, FAN Courier.

A part of the business environment strongly rejects measures that could seriously affect the economic and social balance, by generating lower revenues for the state and thus leading to a precarious state budget in 2020, potentially affecting key areas such as healthcare, education and infrastructure investments. “The business environment no longer needs tax breaks; a country will not work with just tax cuts and continuous spending increases and no adequate programmes to stimulate the entrepreneurial spirit,” said Florin Jianu, the president of CNPIMMR.

A reduction of the general VAT from 19 to 16 percent and of the VAT for food from 9 to 5 percent, in the current fiscal-budgetary context, would further contribute to deepening imbalances, this time by reducing revenue, beyond spending growth in 2020, in line with the legislation that has already been adopted, say representatives of the Coalition for Romania’s Development, a body that includes the most important players in the business environment. As 2020 seems to be a transition year to a new government that is likely to stay in power for four years, reform measures will be postponed until 2021, when we will see tax increases.

On the other hand, there are managers of multinationals and Romanian business people who believe that the taxes that have to be adjusted downwards are those on the workforce, claiming that Romania’s labour taxes are too high.

 

Tax changes in 2020

In terms of taxation, there are two highly relevant topics for the business environment at the beginning of 2020: the elimination of the surtax on part-time contracts and a possible future cut to tax facilities in the IT industry.

The elimination of the overtaxation of part-time contracts entered into force on January 1, 2020, a step which, according to the business environment, represents a return to normality after more than two years in which part-time workers were affected by fiscal measures that we could describe as disproportionate.

The IT industry has been benefiting from an income tax exemption for developers since 2001, which has kept the Romanian IT industry competitive, but lately, prime minister Ludovic Orban has made several statements where he suggested that he was thinking of changing the legislation regarding tax facilities for IT employees.

In this context, it is important to say that the fiscal facilities have kept the Romanian IT industry competitive in the race with other countries that offer developers zero income tax, and the IT workforce deficit in the EU is very high, so eliminating these fiscal facilities in Romania would lead to a massive exodus of specialists.

A more efficient collection of taxes is the main challenge of 2020 in the fiscal field, under a budget deficit target of 3.6 percent of GDP, above the maximum limit set for EU Member States, together with meeting the medium-term budgetary objective (MTO) to consolidate public finances, according to a PwC analysis.

 

Top priorities for 2020: digitisation and a more efficient tax collection process

According to Daniel Anghel, partner and leader of fiscal and legal services at PwC Romania, Romania needs to simplify its tax payment process through digitisation. “The ANAF IT systems have become overburdened and are affecting the entire process of tax collection, both from the budget perspective as well as for the taxpayers, who bear a greater administrative burden.”

After more than two years with many unexpected changes in taxation, what the corporate environment wants first and foremost is a period of real dialogue regarding the tax changes that may be applied in 2020 or 2021. The entrepreneurs and managers who have built companies on the local market, however, also have a number of important priorities that are worth an analysis by government officials.

Specifically, entrepreneurs and managers have identified several consistent priorities at the beginning of the 2020, which focus on digitising and reforming the ANAF. Business people are not expecting tax cuts, but they want to be allowed to focus on their business. Entrepreneurs do not complain about the tax levels, but expect results in exchange for the taxes they pay and protection against unfair competition caused by discriminatory tax measures. They want honesty and lucidity from the state.

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