Romania's tax plans: VAT cut back to 19 percent, 5 percent off social contributions, wider taxation base

The Social Liberal Union (USL) governing program for the following four years includes a number of fiscal changes, with lower VAT (down to 19 percent) and social contributions payable by employers, as well as measures for better revenue collection and the reduction of tax avoidance. Incomes will continue to bear a 16 percent tax, but a scalable income tax (8, 12 or 16 percent) is to be applied sometime during the 4 year term. Domestic agricultural production (processing chain excluded) is to benefit from a massive VAT cut, from 24 percent to 9 percent, the difference being intended to be channeled towards development activities. Social contributions payable by employers will be reduced by 5 percent, while new job creators will be exempt from paying them for 1 year provided that the respective positions are maintained active for another year. Para-fiscal taxation will be cut down by half, while the level of deductible research and development expenses will go up, from 20 to 50 percent. The set of measures intended to stimulate the business environment includes an increase in the VAT exemption limit to EUR 65,000 for SMEs, a 5 year tax exemption on dividends reinvested in equipment and R&D, a simplification of SMEs tax control and document submission procedures. A multi-annual budgeting system and the planned restructuring of the tax collection authorities are likely to trigger significant savings from State budget funds as well as to make public expenses predictable and efficient. The State’s finances are also to be strengthened by means of an alignment with the EU levels of royalties on State concessions. A reduction of cash-based transactions and a wider use of electronic payment and document submission tools are expected to bring about a rise in taxable incomes and a reduction in the amount of tax avoidance. Ioana Jelea, ioana.jelea@romania-insider.com