Romanian Prime Minister Mihai Tudose said on Monday (17 July) his leftist-led government had scrapped a plan to tax companies’ turnover.
It came after sharply negative market reaction and criticism from President Klaus Iohannis as well as local and foreign investors.
In late June, the ruling coalition had announced changes to major taxes due in 2018, including replacing a corporate flat tax of 16% on profit with a progressive tax on turnover.
#Romania One third of companies in Romania risk insolvency if tax on sales is applied
— CEEMarketWatch (@CEEMarketWatch) July 4, 2017
The tax plans and a quickly ditched idea to end a mandatory, multi-billion private pension scheme for those under 35, beat down stocks and the leu (RON) currency.
— SEE Political Risk (@see_risk) July 15, 2017
Tudose took over as Prime Minister last month, after the ruling Social Democrat party (PSD) voted a no-confidence motion in former Prime Minister Sorin Grindeanu, also a social-democrat.
“We will not enforce … this tax,” Tudose told reporters after a meeting of the ruling coalition. “You may consider this subject closed.”
But he added there were large companies that “have been reporting serenely they didn’t have a profit for decades,” and that the tax authority needed to better monitor tax dodgers.
Tudose said the finance ministry was still assessing a planned solidarity tax for top earners.
Other tax measures the government was considering in June included a cut in income tax to 10%, and a move to cut social security contributions by 4.25 percentage points to 35% and have only workers, not their employers pay them. It was unclear when or how these changes would come in.
Tudose reiterated the government’s commitment to keep the 2017 budget deficit at or under the European Union ceiling of 3% of GDP.
Loose fiscal plans have worried the European Commission and the International Monetary Fund over missing budget targets. The Commission expects Romania to run the EU’s largest deficits this year and next at around 3.9%.