Tax Code amendments envisage 10 pct flat tax, deductions, fiscal household

The Public Finance Ministry is working at a draft act amending the Tax Code, with envisaged measures including the introduction of a 10 percent flat tax from 1 January, the granting of certain tax deductions and the introduction of the fiscally acknowledged household, Finance Minister Viorel Stefan announced.

"Joint teams have been working at the MFP (...) on transposing into a regulatory act the idea to reorganise the way the tax income is administrated, aiming to reintroduce the incomes' globalisation and the global incomes' taxation. This under no circumstances means new taxes, new forms of taxation, we talk about the same flat tax which is today 16 percent and the intention is to make it 10 percent starting with 1 January 2018, and apply it to the globalised incomes, to all incomes regardless their source," Stefan told in a press conference at the Victoria Palace.

The Finance Minister added that only such a tax system could make it possible to implement the "mechanism of tax deductions we are talking about and we have assumed through the ruling programme."

"So, the incomes' globalisation is necessary in order to deduct from the base tax the amounts the income earners consume for funds, private pension schemes, health insurance systems, health subscriptions, child schooling, all the list of deductibilities that is already public, for such a scheme to be operable," explained Stefan.

"More exactly, if an employee derives a main income from an employment contract, it is obvious that every month this employee will be taxed with 10 percent flat tax on this main income from their wage, but at the end of the year, by May next year he will be required to submit a tax return regarding all of the incomes collected. Based on this tax return a regularisation will be made, with all deductibilities taken in consideration, and it will then be determined if that taxpayer should pay anything to the Tax Authority or rather get money back from the Tax Authority. (...) This system has ran until 2005, from 2005 - 2006 the incomes' globalisation was given up. So, we wish to reintroduce, it is not about other taxes, it is about another way to manage the tax income to include all incomes in the tax base, regardless of their source and that will make it possible to eliminate the tax deductibilities from the tax base," said Stefan.

The minister added that such a deduction system would allow the stimulation of certain activity sectors, such as the private pensions' systems, private health insurance, educational programmes, housing's thermal comfort improvement.

"And, why not, we could move further up to determining a certain behaviour of citizens in relationship with the traders, so that (...) at end-year, if one produces a certain amount of fiscal receipts one may benefit from a certain sum of deductible income," he stated.

"Talk is still at the beginning, hopefully in the shortest time we will give it a final shape to publicly release it. On its sidelines, we'll make all necessary commentaries, consultations," said Viorel Stefan.

The minister stressed that it will be impossible for the incomes' globalisation mechanism to work without professiona l assistance.

"And then we shall introduce and promote the institution of the tax advisor, but not a tax adviser the taxpayer should hire. The state takes up this obligation to hire tax advisers who will grant services for free to all of the taxpayers who are to provide this personal tax return," mentioned Stefan.

The minister specified that it occurred in the same context the necessity to introduce the "fiscally acknowledged household" notion.

"What does this mean? It means that, if a group of persons, several persons, regardless of the ties amongst them, be they relatives or not, act like a household, together, so they make up a joint patrimony, they register as such at the Tax Authority, and the Tax Authority keeps the register of the households, and then when the income tax is calculated, the Tax Authority has in view as taxation subject the fiscally managed household. Otherwise, it might happen that in a family, in such a household someone collects a huge income, another has no income at all or a tiny income. And then it would be fair that the calculation is made considering the income average per household member," said Stefan.

The minister said that discussions do not consider the progressive tax rate.

"Progressive tax rate, no, there is a 10 percent tax rate and there is a facility with 0 tax for incomes under 2,000 lei. (...) Instead of 16 percent, it's 10 percent for any income, as of 1 January 2018," concluded Stefan. 

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