New governmental team discusses flat tax emergency ordinance draft

The emergency ordinance draft on the introduction of the 16% flat tax for both corporate profits and individual incomes was discussed last night during the first session of the new governmental team.

The main tax increase targets the revenues of the micro-enterprises, which will have to pay 3% instead of 1.5%. At the same time, the draft prepared by the Finance Ministry says that the tax on the incomes made from dividends by individuals will be 10% instead of the current 5%, the same as for companies. The essential change brought by the ordinance aimed at modifying the Fiscal Code is replacing the current personal income globalisation system with the deduction of tax at every source of income separately.

Under the circumstances, the only deductions an employee will get will be the personal base deduction, upped to 2.5 million ROL from 800,000 ROL and the additional deduction that may not be higher than 10 million ROL, depending on the number of people that particular individual supports. The elimination of globalisation will do away with the deductions for contributions to private pension funds, contributions to private health care insurance plans, expenses for buying a computer or expenses for the thermal rehabilitation of the people’s homes.

The deduction of the expenses on private health care insurance and private pensions, as well as of those for sponsorships will only be accepted for those people that are self-employed (those that engage in commercial operations, doctors, lawyers etc.) These people will no longer benefit from personal and additional deductions. The Exchequer will levy a 10% tax on the incomes made from such activities at the end of the year.

The doubling of the tax paid by micro-enterprises and the attempt to dig out the personal incomes disguised as micro-enterprise revenues. These are the main solutions the new Finance Minister Ionut Popescu is considering in order to compensate for the loss of revenues the state budget will incur as a result of the flat tax introduction.

Popescu expects this revenue increase to translate in another about 7,000bn ROL added to the budget. At the same time, maintaining the social security contributions at 49.5% should lead to approximately 10,000bn ROL revenues.

According to the Finance Minister’s estimates, the loss of revenue amounts to 7,000bn ROL from the profit tax cut, with a further 24,000bn ROL possibly added from the personal income taxation adjustment.

The Exchequer intends to collect more money from the reduction of the forfeit expenses accepted as deductible for calculating the tax on the intellectual property proceeds: from 60% to 40% of the gross income, and from 70% to 50% in the case of monumental works of art.

The emergency ordinance also stipulates an increase in the tax on the farming activities income from 15% to 16%.

The non-taxable cap for pensions will be upped to 9 million ROL.
razvan.voican@zf.ro