Changes of the Fiscal Code put the car industry at the risk of collapse

The new tax rules in the initial draft Fiscal Code are likely to have severe impacts over the car industry activities in Romania, namely car and car parts production and distribution, maintenance and service, as well as leasing services or fuel trade, according to the Association of Car Importers in Romania (APIA).

APIA: The newly proposed tax changes will affect the car market

The relevant stipulations that APIA refers to are the non-deductibility of VAT in car acquisitions, limited deductibility of service-based expenses (30%) and full non-deductibility of repair/maintenance expenses.

Non-deductible VAT liability applicable for car acquisitions will pave the way to a sharper decline in sales of new cars. Leasing companies will not be able to recover the VAT applied to payment rates. “This will determine the increase in leasing costs, and consequently the collapse of leasing companies. These tax law changes will also result in an increase of number of cars recovered from bad debtors”, APIA said.

The limited tax exemption of car service expenses (30%) will lead to a contraction of activity in this segment.

“We consider that the Ministry of Finances is proposing in fact a lockdown of the car industry and of its adjacent sectors (maintenance, service, leasing, insurance)”, said APIA.

Mercedes-Benz Romania: The new amendments in tax law will negatively impact the car industry

Mercedes-Benz Romania, the local importer of Mercedes-Benz, smart, Jeep and Dodge, says the measures proposed by the Romanian Government bear high risks, as the economic structure is already under excessive pressure.

The draft tax law initiated by Romanian government is basically walling all the sectors of the car industry in Romania, said Michael Grewe, CEO and chairman of Mercedes-Benz Romania.

The non-deductibility of VAT for car acquisitions, limited tax liability for service expenses up to 30% and full non-deductibility of maintenance expenses are measures that could fuel long-term negative effects, both for local players and for tax collection by the state authorities. The potential weakening of auto maintenance and repair activity will most likely bear a negative social impact, by pushing up the unemployment rate.

Other consequences deriving from the amendments to the tax law will be the decrease of car sales, by shifting clients’ focus to solutions to dodge the legal tax framework.

Porsche Romania, against new tax rules

Porsche Romania, the importer of Audi, Bentley, Lamborghini, Porsche, SEAT, Škoda, Volkswagen, Volkswagen, Weltauto has articulated a clear position against the provisions set out in Chapter II, bill 571/2003 on tax policy measures.

With over 4,500 employees in 96 units across the country, and 566,178 repair contracts recorded at the end of 2008, the representatives of the car importer deems the mere 30% tax exemption as a completely atypical measure which will spur repairs in unauthorized service units and will pave the way to alarming tax evasion rates.

“The new provisions set out in the emergency ordinance of bill 571/2003 regarding the Fiscal Code are completely aberrant, as it will spur the illegal sale of second-hand cars, and subsequently, the contraction of new car sales. The enactment of these amendments to the Fiscal Code in force will generate a large black hole to the state budget and a lockdown of the economic activity. Collection of the VAT applied to all new car acquisitions will affect the major fiscal agents. In the XXI century, mobility is a core element that is keeping businesses competitive, given that over 70% of new-car clients are corporate”, said Brent Valmar, managing director of Porsche Romania.