The social security contributions (CAS), the millstone of the Romanian taxation system, will go down by three percent to 49.5%, as of next year. The decrease solely concerns employers, which will have to bear only 32.5% as total contribution, while the employees will still be paying 17% of their gross salaries.
If the flat income tax was not meant to be, the Exchequer reverts to the promise made this summer about a social security contribution cut from 52.5% to 49.5%, alleviating the pressure of the work force-related costs the companies have to sustain.
The budget draft set for endorsement by the Government today shows the pension contributions will be cut by 2.5% to 22%, with the rest of this “relaxation” applied to the unemployment fund contributions that will shed 0.5% and reach 3%. The other contributions, i.e. those paid by employers for the health care fund – 7% and accidents – 0.5% remain unchanged. The employees will contribute 6.5% of their gross salaries to the health care fund, the same as this year.
The Finance Ministry last month announced plans to operate only a two-percent contribution cut and this way compensate for the revenue decline the introduction of the 23% flat tax for the incomes made by individuals was expected to generate.
Romania might therefore “lose” its top spot among the EU applicants, which levy the highest CAS. Slovakia currently levies 50% total taxes. Romania is finally getting closer to the work force taxation levels used in countries like Hungary – 48.5% or Czech Republic – 47.5%, which could improve its competitiveness in the area, as far as foreign investors are concerned. Although having dropped 8.5% from 2002, the social security contribution level remains very high, which shows in an extremely poor collection rate for this revenue category of the social security budget. These revenues barely exceed 10% of GDP, compared with 14% in the Czech Republic, for instance.
The state budget and social security budget drafts debated with both unions and employers’ associations were built around a 5.5% economic growth estimate, as well as around a budget deficit of 3% of GDP and a 9% inflationary rate calculated December to December.
The GDP estimated for next year amounts to 2,143,900bn ROL (approximately 51bn euros).
Another major change in terms of taxes and duties is the rallying of the profit tax paid by exporters to the standard 25% quota as of January 1, 2004 from the 12.5% in 2003.
Next year will finally witness the introduction of the low VAT in Romania, as well, which tax will amount to 9%. razvan.voican@zf.ro