Update: Romania’s Government adopts new corporate taxes despite investors’ opposition

Romania’s Government adopted on Friday evening an emergency ordinance that brings new taxes for banks, energy companies and telecoms and changes the functioning of the mandatory private pension funds (Pillar II). The ruling coalition made of the Social Democratic Party (PSD) and Alliance of Liberals and Democrats (ALDE) introduced these fiscal changes almost overnight, without any prior consultation with the business environment. Finance minister Eugen Teodorovici announced the proposed changes on Tuesday evening and, the next day, the Bucharest Stock Exchange’s main index crashed by 11%, its biggest daily decline after the 2008-2009 financial crisis. Large companies and business organizations representing both Romanian and foreign investors came with a joint message against the proposed changes, but the Government chose to ignore them and move on with its measures, which will enter into force in January 2019 and will strongly impact the budgets and future plans of companies operating in Romania. The changes enforced by the Government’s emergency ordinance include a tax on bank assets, tied to the interbank interest rate (ROBOR) and special turnover taxes on energy and telecom companies. The ordinance was also supposed to allow contributors to mandatory private pension funds (Pillar II) to take out their money and invest them in other instruments, but this provision was removed. Prime minister Viorica Dancila said before the cabinet meeting on Friday evening that this ordinance would help increase the citizens’ wellbeing and investments and correct some “unfair practices” in the banking and energy sector. The measures in this ordinance also include capping gas and electricity prices for end-users for the next three years and setting a minimum level of EUR 1 billion for selling 5G licenses and EUR 3 billion for prolonging 3G licenses, Dancila said, according to News.ro. The money collected from these new taxes will be used for several programs the Government will launch next year: building 5,000 kindergartens with a sports profile worth up to EUR 500,000 each, setting up a EUR 10 billion fund to finance development projects promoted by local authorities and universities, increasing state pensions by 15% starting September 2019, increasing teachers’ salaries. The prime minister asked ministers and her advisor Darius Valcov to explain the full effects of this ordinance. Meanwhile, big companies targeted by the new taxes have already said the proposed measures would bring many negative effects, leading to price increases, lower investments and the loss of jobs. The Coalition for Romania’s Development (CDR), an organization representing local and foreign companies with a contribution of over 50% to Romania’s gross domestic product (GDP) and over 1.2 million employees, issued a new open letter on Friday urging the Government not to proceed with these measures. “Unfortunately, this ordinance was drafted without a serious analysis and without consulting specialists in the sectors it targets and taxes. Lacking this consultation and being drafted by a limited number of people, it contains many mistakes and conclusions based on wrong analysis. We consider these can be corrected following a dialog with the business environment,” CDR’s letter reads. “The solution we see is not adopting these changes through emergency ordinance, just before the winter holidays, and enforcing them in just a few days, but an honest dialog, based on arguments, figures and impact studies, which requires time and effort,” the letter also says.