Tax deductions promised for next year

The Exchequer is becoming unexpectedly generous, considering the budgetary austerity over the last few years: as of next year, it is prepared to acknowledge certain expenses as deductible for individuals. It is about the expenses for home insurance, private health care insurance and occupational pension schemes contributions.

All this for a noble purpose. “We will no longer levy taxes on home insurance as of 2004, in order to stimulate the insurance market,” Finance minister Mihai Tanasescu on Monday said during the presentation of the Fiscal Code draft.

The insurance market, which totalled $511 million in 2002, could progress at top speed over the next few years, as a result of these measures, growing by tens or even hundreds of millions of dollars a year.

At the moment, only 3% to 5% of the seven million homes in Romania are insured, even though an earthquake above 7 degrees Richter is more and more likely to occur, while the authorities have been discussing the possible introduction of the mandatory earthquake insurance for a more than a year now.

“In case the law makes home insurance mandatory, we will stipulate the respective deductibility there. If not, we will admit it directly,” Finance Ministry state secretary Maria Manolescu, the official in charge of taxation, said.

As usual, turning the plans into effect will be difficult, because these deductions entail declaring every income.

“The deductibility will be difficult to manage, because it would require anyone insuring their homes to file a tax return in order to get the deduction (only those with several streams of income have to file such tax returns at the moment i.e.). Or they could have a monthly deduction system,” says Alex Massaci, tax manager with PricewaterhouseCoopers. At any rate, it is yet unclear for which type of insurance will the deductibility be granted, considering the earthquake risk is but one of the components of a home insurance policy.
sorin.pislaru@zf.ro ; razvan.voican@zf.ro