The Tax Code, debated in the blind

The absence of the draft of the Fiscal Code continues to keep the interest of the public opinion high.

The rewriting of the Tax Code is an issue which has been heavily debated by the public, lately, following the repeated blunders of the government, which first introduced a number of tax hikes, and then removed the initiative from the website of the Ministry of Public Finance, and it is now debating with the businesspeople and with specialists in the field, but without making it public.

Under these circumstances, some press entities, including BURSA, have obtained various versions of this draft, which we can't yet know whether or not they are final or whether they will remain unchanged until the time they are approved.

This means that based on these drafts of the Fiscal Code, we constantly get headlines along the lines of "Apartment taxes to increase", "Land taxes to increase", "Property taxes to increase" etc., with taxpayers being forced to witness this "rumor mill" keep grinding, due to the obscurity practiced by the authorities.

Cristian Pârvan, the secretary general of the Association of Romanian Businesspeople (AOAR), claims that the draft of the project changes from one day to the next: "The text of the drafts (ed. note: the Tax Code and the Tax Procedure Code) are somewhat fluctuating and a concrete form will not be reached as long as the initiatives are being discussed".

The tax experts participating in the debates claim that the Government needs money and that it is trying to raise that money through new taxes or by increasing the existing ones.

This claim is also supported by the fact that until now, most of the times when a new tax was reduced, which is what is supposed to happen with the Social Security Contributions, other taxes were increased.

In the last week, the representatives of the authorities and of the business sector have talked on several occasions about the new Fiscal Code, and on July 31st, the initiative will be presented in detail.

We quote below some of the measures appearing in the latest versions of the Fiscal Code.

• Schwartz: "People who only own one home may pay higher taxes than they currently do"

The additional tax that some taxpayers own aside from their residence, according to some of the versions of the draft Fiscal Code.

The Government says that the reasons provided for the possible cut of the additional taxes levied on owners of multiple properties reside are that the taxes in question are "unfair" and they would generate numerous "management problems" on a local level.

Tax consultant Dan Schwartz told us that in practice, it is very hard to track whether taxpayers that own several properties are being honest or not when it comes to paying their taxes for those properties.

Cristian Pârvan has the same opinion, and he says that since there is no unified national property database, it is very difficult "to know what homes an individual owns, where and how each of them is taxed": "The whole process relies on the taxpayers' filings. If they had to provide one local authority with certificates issued by another, this would create a huge bureaucracy and we run the risk of being unable to even collect the base tax".

Dan Schwartz told us that before passing this measure, the authorities would like to increase the tax base for the property tax, which means that after eliminating the additional taxation margins for some properties, those with just one home will pay more, and those with several properties will pay approximately the same in taxes, in terms of amounts.

According to the current tax code, owners of multiple properties pay a tax increased by 65% for the first property owned, aside from the one which they reside in, by 150% for the second property and by 300% for the third property and any more properties owned aside from the one used as residence.

• Company properties may be taxed at market value, rather than book value

The Government may change the methodology for calculating the property tax, which is currently calculated based on the book value. One of the versions of the Tax Code stipulates calculating the tax based on the value of the property, to be determined through an appraisal report, or based on the market value, respectively.

For non-residential properties owned by companies, the property tax will amount to 0.1% of the taxable value of the property, and for non-residential properties the tax will range between 0.25% - 1.50% of the taxable value of the property, calculated according to the new methodology.

If the taxable value of the properties has not been updated in the past three years of the fiscal reference year, based on an evaluation report drawn up by a certified evaluator, with the exception of the properties which belong to individuals who have been declared bankrupt through a definitive court order, the tax rate will range between 5% - 10% of the taxable amount.

According to Mr. Pârvan, the mechanism will be supplemented by the existence of an entity that would issue an index of the real estate market: "But on that matter, the question which arises is < which specific entity would create the real estate index, in a realistic and objective manner? >".

Whereas the appraisal is currently done every three years, according to the new draft law, the assessment would be done annually or as often as needed, according to the quoted sources.

"In practice, there will still be problems, because it can happen that the market value drops and then the local authorities will conduct their own evaluations, just like they currently do, refusing to comply with objective evaluations. This has already happened, with the mayoralties basically breaking the law", Dan Schwartz told us.

In the case of properties with mixed destination, when the values of the areas used for residential purposes and those used for a non-residential purpose can not be recorded distinctly, their value will be determined in proportion to the ratio of the surfaces used for residential and non-residential purposes, respectively, out of the total surface of the property.

If the surfaces are not distinctly recorded and the expenses of the property are not recorded as liabilities of the entity conducting the economic activity, the property will be treated as non-residential, meaning the amount of the tax paid for it will be higher.

The Government provides as a justification for the new system the requirement of the IMF to change the methodology used for calculating property taxes, so that they are determined using the market value.

• Higher taxes for apartments and old houses and lower taxes for spacious houses

The taxes are also bound to increase in the cases of apartments located in blocks with more than three floors high and eight apartments, as well as for buildings 30 to 50 years old, and will be cut for spacious homes, with a surface that exceeds 150 square meters.

One of the tax code versions, quoted by Mediafax, states that for an apartment in a block of flats with more than three floors and eight apartments, the tax will increase by up to 10 lei, which will result in the tax administration collecting an additional revenue of several tens of millions of lei.

Taxpayers living in old buildings may see their taxes increase by several tens of lei.

Also, owners of large houses (more than 150 square meters) may pay a lower tax next year, because the payable amount will no longer increase according to the number of square meters that exceed the total surface of 150 square meters.