Romania's fiscal revolution stirs discontent

“The much discussed and debated ordinance that contains amendments to the Tax Code included in the governance program, meaning long time known changes approved by Parliament, brings important benefits to citizens and companies that operate in Romania" says Finance Minister Ionut Misa, but it seems that not everyone agrees to the proposed measures.

The fear that employees' net income will decrease and the employer will have to pay more money into the national budget as a result of the income tax changes brings people in the street and unions are planning strikes.

The measures of decreasing the income tax from 16 percent to 10 percent and social security contributions decreasing from 39.25 percent to 37.25 percent and the switch in payment of the mandatory social security contributions from employers to employees, will not necessarily mean savings as the calculation will be applied to the gross income say fiscal consultants.

Finance Minister Ionut Misa pointed out that the first fiscal measure was to reduce the income tax from 16 percent to 10 percent for employees, pensioners, authorised individual traders, on income drawn from copyright and by individual businesses, on rents, on interest, annuities, prizes, agricultural activities, forestry and fish farming, as well as on income from other sources and investment, except for dividend income, where the tax remains at 5 percent. "At the same time, social security contributions are reduced from 39.25 percent to 37.25 percent, so there is a two-percent cut in social contributions. In correlation with these two measures, there is a third measure aimed at transferring to employees the payment of mandatory social security contributions incumbent on employers in the case of wage and related income. I would like to mention that the effect of all these three cumulated measures will be an increase in the employees' net income without the employers paying more money into the national budget," Misa explained.

Meanwhile, the National Bank of Romania is looking closely at the inflation trends, expecting an increase in the first months of next year due to a statistical effect, but if there are to be spurs that tend to last, then it will intervene, Governor of the National Bank of Romania Mugur Isarescu said during a press conference quoted by Agerpress.

"We wil look very closely at the trends to see if it is something more or less accidentally, statistically. Statistically, we are expecting inflation to peak in the first quarter. Why? Because last year by factoring in the Value Added Tax (VAT) inflation was very low, and then one-year inflation January 2018 against January 2017, shows an increase, even if the monthly inflation in January next year will not be high. Neither will it be so in February nor in March; so we are expecting such a surge in inflation, but we know that it will be overtaken. There is no point in reacting to it by taking measures that would disturb the economy to tackle something that is only temporary. But, if we see that there is a tendency and an increase in inflation that tends to last, we will of course react," said Isarescu.

The National Bank of Romania also revised the inflation forecast for the end of this year to 2.7%, the previous forecast indicating an inflation of 1.9% in 2017.

For the end of 2018, the NBR estimates an inflation rate of 3.2%, similar to the previous forecast.

According to the NBR, exceeding the upper limit of the target range in the first half of 2018 is mainly due to basic statistical effects associated with indirect tax and tax cuts in early 2017, the expected evolution of exogenous components but also the accumulation of associated inflationary pressures the domestic environment at the level of basic inflation.

Calculated at constant rates, the inflation rate will reach 3.3% in December 2017, 3.1% at the end of next year and 2.9% at the forecast horizon, September 2019.