Global taxation report: Romanian government's tax change surprises are a problem for business

The 24 percent VAT rate in Romania is among the highest levels around the world and although the 16 percent flat tax is attractive for investors, frequent and often sudden changes in taxation can cause businesses problems, according to consultancy firm KPMG.

The comments come with KPMG's latest report on tax around the world, which also deems both a decrease in VAT and an increase in the flat tax rate as unlikely. “Romanian profit tax has been 16 percent since 2005, when the flat tax was first introduced, and there are no signs of potential hikes. Although there has been some discussion about reducing VAT rate, a decrease is unlikely given the expected economic and budgetary context in 2013,” said Ramona Jurubita, Tax Partner, at KPMG in Romania. Romania's 24 percent VAT rate is only a little below Hungary's 27 percent – the highest rate in the world at the moment, according to KPMG. At a global level, KPMG found that indirect taxation had risen on average, by 0.17 percent to 15.50, and more rises are expected in the current economic context as governments attempt to balance the books. “We expect the global indirect tax rate average to continue to rise in 2013 as more governments continue their path to economic recovery,” said KPMG’s Head of Global Indirect Tax Services Tim Gillis. KPMG judges the corporate tax rate in Romania to be “relatively low,” but is critical of the sudden and unexpected changes in tax, which are something of a headache for businesses trying to budget effectively. “One of the continuing difficulties is that there are frequent changes to legislation on both direct and indirect taxation, often at very short notice. While I understand the challenges which the government faces in maintaining budget revenue in these straitened economic times, greater stability in tax legislation would be highly beneficial to business and the overall health of the economy,” said Serban Toader, Senior Partner at KPMG in Romania. KPMG in Romania and Moldova has six offices located in Bucharest, Cluj-Napoca, Constanta, Iasi, Timisoara and Chişinău. The firm currently employs more than 650 partners and staff, which include Romanians, Moldovans and expatriates. KPMG is a global network of professional firms providing audit, tax and advisory services. The network operates in 156 countries and has 152,000 people working in member firms around the world. editor@romania-insider.com photo source: sxc.hu