Avon: New legislation on sole traders' taxation causes some Avon representatives to stop working for us

Avon Romania, the biggest cosmetics direct selling company, has strongly felt the impact of the VAT raise by five percent, announcing that the turnover growth rate, by around 13.5% in RON, recorded in 2009, will go down this year because people are buying cheaper products.

“The VAT hike and the measures taken by the government over the last two months have had a three-level negative impact on Avon’s business. Firstly it affected our profitability because we kept prices unchanged, the 5% difference was covered by the company. Secondly, as incomes declined, people started to buy cheaper products, and thirdly, the new legislation on taxation of sole traders (PFA, PFI) has led some Avon representatives to suspend their activity,” Razvan Diratian, commercial manager of Avon Romania and Bulgaria told ZF, attempting a brief account of the last three months’ performance.

The American cosmetics company, which posted 113 million euros (474.7 million RON) in turnover in 2009, similar in euros to the 2008 level, has, apart from direct customers, 9,000 independent contractors working based on a professional certification and a further 1,600 sole traders. Under the new legislation, they need to contribute to the pension, health, and unemployment fund similarly to people that collect royalties, the difference being that for sole traders and of independent contractors the taxable amount is the net profit. Direct selling companies work with the biggest number of independent contractors.