NGOs in Romania, impacted by announced fiscal changes
A fiscal measure recently announced by Romania's Government may negatively impact local charity organizations as fewer companies will be able to make donations.
The Government's intention to increase the turnover threshold for companies paying a tax on turnover instead of a tax on profits to EUR 1 million may leave 80% of the local profitable companies unable to make deductible donations, according to a group of local NGOs. Currently, companies that pay a tax on profit in Romania are allowed to direct 20% of their taxes to sponsor social causes but companies paying a tax on turnover don't have this option.
Only companies with less than EUR 100,000 in sales were obliged to pay a tax on turnover until the beginning of this year. Then, the Government increased the threshold to EUR 500,000 and now it is planning to further increase the limit to EUR 1 million, starting January 1, 2018. Some 425,000 active companies in Romania of a total of 450,000 had turnovers under EUR 1 million, according to Coface data from 2015.
The group of NGOs have proposed a mechanism allowing companies to direct 20% of the turnover tax to social causes, to counter the effects of the recent Government measures. The project was presented by the Association for Community Relations (ARC Romania), in a partnership with the Dăruiește Viață Association, Hospice Hope Foundation, the MagiCAMP Association, the Niciodată Singur Association and the Hope and Homes for Children Foundation.
The Sponsorship Law, introduced in 1994, allowed companies reporting profit to direct a part of their profit tax to projects with an impact in helping the community. Companies can direct 20% of their profit tax as sponsorship for various social causes. However, small enterprises, which do not pay a profit tax but a turnover tax, cannot benefit from this law.
Of the 119,594 companies paying a profit tax in 2016, a third used the option of directing part of their profit tax to various social projects. They directed over EUR 270 million to various organizations rolling out these types of projects, according to data from the tax authority ANAF, quoted by the NGOs.
After the maximum turnover defining microenterprises increased from EUR 100,000 to EUR 500,000 at the beginning of 2017, the number of companies able to benefit from the Sponsorship Law decreased significantly. Almost 50,000 of the companies that could previously redirect their profit tax are no longer eligible to do this, according to estimates of ARC Romania. These companies could have made sponsorships amounting to some EUR 40 million but since they began paying a turnover tax instead of a profit tax they could no longer do this, the NGOs explained.
At the same time, the recent decision to have companies with a turnover below EUR 1 million pay a 1% tax on their turnover instead of a 16% profit tax will further lower the number of companies that can use the fiscal facilities of the Sponsorship Law. Over 40% of the companies that could previously redirect their profit tax can no longer do this, while the amount of money that can be directed towards social causes drops by approximately 8%, the NGOs said.
The tax changes will have the most impact on small organizations, working in small localities, and which cannot access financing from large corporations or public funding. These are expected to lose the sponsorships they can obtain from local companies, most of them micro-enterprises.
“Changes of significant impact were possible so far, in very many cases, because of the financing offered by this segment, of small and medium sized companies, which offer average sponsorships of EUR 1,000. In some cases, large projects that have already been started by NGOs are in danger of being stopped,” Mădălina Marcu, resource development director with ARC Romania, said.
The group of NGOs proposed a project that would allow micro-enterprises with a turnover between EUR 100,000 and EUR 500,000 to direct 20% of their turnover tax to sponsorships. They have sent the project to the Public Finances Ministry.