Romania introduces flat tax rate

Two of the new Romanian government’s first actions have
been to introduce a flat income tax regime and enact a law
restricting international adoptions.

The new centrist government of Romania, headed by Prime Minister
Calin Popescu Tariceanu, aims to turn the country into the “EU’s
showcase, a model for its neighbours to follow”, said incoming
Foreign Minister Razvan Ungureanu in an interview with AFP. The
36-year-old Ungureanu also said that Romania “will act as a magnet,
particularly for Moldova” but also for Russia, Ukraine and Belarus
in these countries’ quest for closer co-operation with Europe.

Meanwhile, in an attempt to keep a lid on the country’s
budgetary deficit and to prepare Romania for competition within the
EU, Bucharest has introduced a flat income tax regime. The new flat
16% rate replaces personal income tax brackets that ranged from 18
to 40% and corporate income taxes of 25%. The International
Monetary Fund has approved the move and called it “good fiscal
policy”. The measure took effect on 1 January. 

Analysts have pointed out that Romania cannot afford
to exceed the 1.5% of GDP deficit level in 2005 if it wants to
ensure that it meets its inflationary and current account
deficit targets.

Announcing his government’s first decision after the 24-member
cabinet was sworn in on 29 December, Prime Minister Tariceanu also
pledged to introduce measures against tax evasion, corruption
and poverty. In his acceptance speech he also pledged to “build an
independent judiciary and strengthen individual freedoms”.

On 1 January another new law took effect in Romania
whose aim is to restrict international adoptions to
biological grandparents. Under the law, children aged over two
years can be adopted by foreigners if the search for Romanian
adoptive families has failed. Since 1989, some 30,000 Romanian
children have been adopted internationally.

Tariceanu’s cabinet includes 17 ministers from the centre-right
Justice and Truth Alliance party (DA), with the remaining seven
portfolios held by two smaller parties – the Humanist Party
(PUR) and the party representing ethnic Hungarians (UDMR). The
government can count on 242 votes in the 469-seat parliament.
Bucharest hopes to join the EU in 2007.

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