Aggressive tax measures lacked effectiveness
But not all measures put in place by the Romanian government were effective.
"Unfortunately, some quite aggressive measures have also been taken, such as in practice delaying VAT refunds, and these have not been helpful to the business climate. In 2009, there was political instability as well as Presidential elections and elections for the European Parliament. These factors have acted as a disincentive to tough decision making by government. Hopefully 2010 will be a more stable year politically, with a new government now in place, and no elections scheduled,” Nicolae Done added.
After dealing with a serious blow by the recession, small business leaders found out they must pay a corporate income tax of 16%, just because the government had to raise the country’s budget revenues.
The measure forced 15-20% microenterprises to shift to self-employed entities, 25% to pay the new income tax, resorting to other fiscal and financial techniques, while others to consider going under an offshore’s umbrella.
“There has been much speculation about a possible rise in VAT or in the flat rate for corporate and personal income tax. Such steps would be counter-productive as they would slow down the recovery and in turn have a negative impact on budget revenue. Instead, the government should concentrate on more efficient revenue collection to tackle the underground economy, which by most estimates remains substantial,” said Mark Gibbins, Tax Partner and Head of KPMG in Romania’s Tax Department.
For example, tax audits should be more carefully focused on companies and individuals who present a high risk of tax evasion, rather than being carried out randomly as at present, Gibbins concluded.
"Unfortunately, some quite aggressive measures have also been taken, such as in practice delaying VAT refunds, and these have not been helpful to the business climate. In 2009, there was political instability as well as Presidential elections and elections for the European Parliament. These factors have acted as a disincentive to tough decision making by government. Hopefully 2010 will be a more stable year politically, with a new government now in place, and no elections scheduled,” Nicolae Done added.
After dealing with a serious blow by the recession, small business leaders found out they must pay a corporate income tax of 16%, just because the government had to raise the country’s budget revenues.
The measure forced 15-20% microenterprises to shift to self-employed entities, 25% to pay the new income tax, resorting to other fiscal and financial techniques, while others to consider going under an offshore’s umbrella.
“There has been much speculation about a possible rise in VAT or in the flat rate for corporate and personal income tax. Such steps would be counter-productive as they would slow down the recovery and in turn have a negative impact on budget revenue. Instead, the government should concentrate on more efficient revenue collection to tackle the underground economy, which by most estimates remains substantial,” said Mark Gibbins, Tax Partner and Head of KPMG in Romania’s Tax Department.
For example, tax audits should be more carefully focused on companies and individuals who present a high risk of tax evasion, rather than being carried out randomly as at present, Gibbins concluded.