Romanian government backtracks from plan to tax companies’ turnover

Romanian PM Mihai Tudose, to the right, and Romanian commissioner Corina Creţu in Brussels on 11 July 2017. [Commission]

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.

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.

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.

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“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%.

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Romania’s lower house of parliament yesterday (5 January) approved tax breaks for pensioners, making good on a government promise to loosen fiscal policy as the economy picks up pace.

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