Romania’s government approves controversial changes to Fiscal Code amid protests

Ovidiu Posirca 08/11/2017 | 16:35

The government has approved on Wednesday a raft of controversial changes to the Fiscal Code, despite critics from trade unions and protests held in front of the government building.

Around 1,000 people were protesting in Victoriei Square, while the cabinet of PM Mihai Tudose was holding a crucial meeting that had been delayed two times.

Among the approved changes there is the transfer of social contributions payable by employers to employees and the reduction of the income tax from 16 percent to 10 percent starting next year. While trade unions have warned that the shift in social contributions will lead to a decrease of wages, mayors have argued that the reduction of the income tax will reduce the overall budget allocations for investments.

The government has also updated the taxation system for microenterprises. Thus, companies recording revenues between EUR 500,000 and EUR 1 million annually will pay a turnover tax of 1 percent instead of the flat corporate tax of 16 percent.

Officials suggested tnhat the increase of the minimum wage will be approved through a separate draft bill.

The ministers have also approved the increase of the social pension to RON 640 and the hike of the pension point to RON 1,100 as of July 1 2018. The contribution to the second pension pillar, which is privately administered, will be reduced from 5.1 percent to 3.75 percent. The government said the amount transferred to the second pension pillar will remain unchanged at least next year.

The social contributions for wages will be slashed by 2 percentage points, while the number of contributions will be slashed from nine to three (CAS – Contribution for Social Insurance; CASS – Social Health Insurance Contribution and the labor insurance contribution).

The minister of finance Ionut Misa said that the social contributions payable by employers will stand at 2.25 percent as of next year, while employees will pay 35 percent.

Romania’s government has also approved the transposition of the Anti-Tax Avoidance Directive 2016/1164.

“This measure is challenged because it aims to limit the deductibility of interest rate reported between firms within the same group. It’s a beneficial measure for the Romanian economy, the state budget and of citizens, who will benefit from more hospitals, highways and benefits in their favor,” said Misa.

PM Tudose said that the measures tackling the externalization of profits have “inflamed some multinationals”. “I just found out that the subsidiaries of some banks have given breaks to employees to attend protests.”

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Furthermore, the PM has indirectly referred to the protest of Dacia employees against the shift in the payment of social contributions.

“I appreciated, with the quotation marks, a protest of some Romanians supported by the management that wanted highways with the company externalizing the profit. Amazing. It’s not working,” said Tudose.

Meanwhile, Dacia said it did not comment on the political decisions of the authorities.

“The action from November 7 is an initiative undertaken exclusively by SAD (The Autoturisme Dacia Trade union), an independent legal entity. The company was only informed by the SAD about this move, according to the provisions of CCM (collective labor contracts – e.n.),” said the company.

On Wednesday, the RON/EUR exchange stood at 4.6198, which is the biggest rate from the last five years and four months.

The National Liberal Party (PNL) said it will initiative a motion of no confidence against Tudose’s government following the approval of the fiscal changes.

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