Fiscal policy in 2011 - Between budget deficit pressures and measures to stimulate business activities
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The financial crisis hit Romania a year after some other European countries, but the effects were severe and caused major changes in the economy.
During the first half of 2011, GDP improved slightly compared to the similar period of2010. Some industrial sectors, such as industrial products and energy showed animprovement, mainly driven by exports. In the third quarter however, there was a slight decrease, triggered most probably by the economic uncertainty surroundingthe European sovereign debt crisis which has lead to a slowdown of growth in Romania’s major trading partners. Overall, a number of indicators were positive,but led to an increase in the economy of only 1.4% year on year. Budget revenues had increased by 11% by the end of September 2011 compared to last year. Anyincrease is welcome, but further measures should be taken to ensure a steady increase in the coming years.
In an effort to manage budget deficits in European Union countries, new policies were adopted regarding financial discipline, by implementing budget rules intended to prevent sovereign debt crises in the future. A key development was the European Commission’s proposal for a Directive on a Financial Transaction Tax. The plan adopted by the European Commission covers payment starting in 2014 of taxes on the purchase of shares, bonds and derivative instruments in the European Union orhandled by offshore banks. France and Germany are in favour of this measure. However, any decision on taxation needs to be approved unanimously by the European Council, which is not certain at this point.
Other CEE region countries started implementing measures to fight the effects of the economic crisis and to generate more budget revenues. The Czech Republic decided to postpone the merging of its standard 20% and reduced 10% VAT rates, from January 1st, 2012 to January 1st, 2013. The Czech government found it necessary to slow down the phase-out of the reduced rate and increase the rate to 14% in 2012, rather than eliminate it. The standard rate remains at 20%, with the two rates finally due to merge at 17.5% in 2013.
In response to the crisis, Hungary took radical steps to reduce costs and bring spending down to a sustainable level. The VAT rate will be increased from 25% to 27% as of January 1st, 2012 and the personal income flat tax of 16% will be replaced by a progressive taxation system. The Hungarian government has also approved a new tax on the manufacture and sale of snack foods that contain high levels sugar, salt or caffeine.
IN ROMANIA, THERE HAVE BEEN A NUMBER OF CHANGES IN THE FIELD OF TAXATION:
VAT changes
After being introduced by the Romanian Government in 2010, the EU Council approved in May this year, the implementation of the reverse charge mechanism for supplies of cereals and industrial crops performed on the Romanian territory between companies registered for VAT purposes. The measure will apply until May 31st, 2013 and is aimed at reducing tax evasion in this field which has previously generated significant losses to the state budget. This measure is expected to bring additional revenues to the state budget of RON 240 mn this year, RON 410 mn in 2012 andRON 170 mn in 2013.
With the ceaseless intent of fighting tax evasion, the tax authorities introduced an additional burden for taxpayers: for newly set-up companies, supplementary requirements are in place for the VAT registration process. The tax administrationcan approve or reject VAT registration requests from newly set-up companies based on a set of documents used to evaluate each applicant’s need for VAT registration.
As such, not only is the procedure more complex than previously, but it requires the active involvement of companies, as they are obliged to follow all the bureaucratic steps in order to obtain the VAT registration. These steps include obtaining the fiscalrecord of the administrators / shareholders and preparing the annex that should be submitted to the tax authorities.
In other words, newly set-up companies that intend to register for VAT purposes will bear additional costs for this process and also have to wait until the process is completed in order to perform economic activities, as, based on Romanian law, the tax authorities are required to solve VAT registration requests within 15 days of the date the documents required by the law are submitted by companies.
New Labour Code
A new Labour Code entered into force in May and brought more relaxed provisions regarding setting up and terminating working relations. A number of facilities were introduced by the new Labour Code, such as: extension of the probation period for newlyhired employees and of the notice period for resigning employees, less restrictive criteria for terminating labour agreements when an employer faces financial difficulties, objectives and procedures to evaluate employee performance, flexibility of working time. In addition, a new law was introduced regarding day labourer activity, laying down obligations for both parties and also compliancerequirements.
On the other hand, more severe measures were introduced related to working relations without legal agreements.
