Government mulling single 18% income tax for natural persons

The Government is planning to introduce a single global income tax for the natural persons. Most likely, this quota will amount to 18%, according to government sources. Taxation levels are now ranging from 18% to 40%.

The single quota is to be endorsed in the new Fiscal Code draft, which will be discussed by the Executive this week.

“There are three drafts for the new fiscal code. According to our calculations, the effect of a single 18% quota on budget revenues would amount to only 300 billion ROL, which is why this solution is very likely to be endorsed,” the quoted sources say.

Given the upcoming elections, government officials are seriously considering applying such a low taxation, but are also mulling the elimination of the planned fiscal deductions.

The Finance Ministry had said that the new Fiscal Code would enclose regulations for deducting interest rates for mortgage loans, the house insurance premiums, contributions to optional pension plans and private healthcare, but also expenses associated with installing heating units and home improvement. According to the above-mentioned sources, the single 18% quota would guarantee a bigger electoral impact.

A quick calculation shows that, in case of a gross monthly income of 20 million ROL, an 18% tax (instead of 40%) would propel net income from 12 to 16.4 million ROL. Taxation levels are now 18%, 23%, 28%, 34% and 40%, with the last level applied for the gross income exceeding 11.6 million ROL.

However, the authorities have something else in mind when they speak of introducing a single tax.

This measure would prompt companies to declare the real salaries of their employees, so more social security, health and unemployment contributions would be paid. Because of the huge taxes, many companies choose to pay minimal wages and, implicitly, minimal taxes, and think of other methods in order to pay bigger salaries to their employees.

This decision would bring Romania in line with increasingly more countries. Russia, Estonia and Lithuania have even endorsed a single income tax, as they were plagued by vast tax evasion.

Among the other Central and Eastern European countries, Hungary and Poland still apply 40% maximal tax, but in Poland, for instance, income is four times higher than in Romania.

France and Holland levy maximal quotas of 54% and 52%, but starting from 43,000 euros, eleven times the maximal income now taxed in Romania.
razvan.voican@zf.ro