Income taxation changes in store

“What if we introduced a single taxation quota for the salary income? How would you like that?” This is not a poll conducted by Ziarul Financiar, but a question asked by the Finance minister during an informal meeting.

The issue has been carefully studied by the Finance Ministry lately, particularly after having been the object of a heated debate during an economic forum organised by President Iliescu at the Cotroceni Palace last month.

Several options to resize the five taxation categories, including the possibilities to bring them all together so as to levy a single taxation quota, were also discussed during the recent negotiations with the IMF mission. The Finance Ministry’s experts devised ways to have one or two taxation quotas for salary-related incomes, which entails reducing the number of income categories, as there are five of them at the moment.

The Fiscal Code draft, now in its final version as far as the Finance Ministry is concerned, retains the five taxation categories, with taxes amounting to 18%, 23%, 28%, 34% and 40%. The draft is to be debated by the Government on August 28, and then forwarded to Parliament for discussion as part of an emergency procedure in September. The decision to resize the taxable income categories is largely political, particularly if considering elections are near.

“Resizing the taxation quotas will be done, but one step at a time. The point is it will generate a huge revenue void at first and the budget deficit cap is very tight,” Maria Manolescu, Finance Ministry state secretary in charge of taxation says. Reducing the number of income categories and the matching taxation quotas would mean Romania is rallying to a trend that is spreading worldwide.

Russia, Estonia and Lithuania have gone as far as to introduce a single income tax quota. Russia had to take that step because it was faced with a huge tax evasion problem, but the positive effects were quick to show: both the costs entailed by the tax management and the evasion plunged. razvan.voican@zf.ro