Digitization of fiscal reports, hampered by the lack of skills of ANAF officials

The business environment appreciates the fact that the Government has taken the necessary steps in the direction of digitization and taxation, but for the success of the respective reform it is necessary that the ANAF staff have the necessary skills for the online reporting systems to function at optimal parameters, stated the participants of the the 18th edition of the TaxEU Forum, which is being held these days in Bucharest.

At the opening of the event, Mihaela Mitroi, managing partner of the Global Tax Advise company, said that what has happened in recent years is exhausting both for the business environment and for the authorities who have to learn to communicate digitally with taxpayers to the budget of the state, especially after the generalization of Ro e-Transport and Ro e-Invoice systems.

Mihaela Mitroi stated: "In close connection with the digitization of documents sent by taxpayers to the authorities, we must see what we do with fiscal controls during this period, because I believe that ANAF is not sufficiently well prepared regarding the implementation of digital systems".

Mrs. Mitroi's concern is also shared by Alex Milcev, Partner and Leader of the Fiscal and Legal Assistance Department for EY Romania and Moldova, who is skeptical about the operationalization of the e-VAT system from August 2024 as announced by some ANAF representatives.

Mr. Milcev specified: "It seems to me that the operationalization of e-TVA is too advanced if we look at the problems faced by the e-Invoice system. I think that the e-VAT system can only be operationalized somewhere in the middle of 2025".

The representative of the EY company drew attention to the fact that by GEO 115/2023 the Saf-T, e-Transport, e-Invoice, e-cash registers and e-Segil systems were designated as national strategic systems, which means that they is permanently in the sights of the state through the Special Telecommunications Service, that these systems do not belong only to ANAF, but are part of the country's security strategy from a fiscal point of view.

Alex Milcev showed: "The coupling of these systems means a chain of data on the basis of which the Tax Office will have a better picture of the flows in the economy, which will lead to the reduction of tax evasion in the years to come. Even though the e-Invoice system failed two weeks ago, being still under development, it still meets the requirements of the business environment. (...) Currently the system is set for the daily loading of 5 million invoices. We will see if it is enough or not, after June 30, 2024. (...) For now, the information in the e-Invoice and the cash register system is not complete, because business-to-consumer trade is not included in them. That's why I'm waiting for the methodology and system changes from the next period".

• Possible economic recession in 2024

Angela Roşca, managing partner at Taxhouse-Taxand Romania, said that this year she expects a possible economic recession.

Mrs. Roşca specified: "This year I see as the main threat a possible economic recession, maybe not at the level of the one in the 2008-2009 period, but it will manifest itself in certain sectors of activity. Since we are in an election year, it is possible to see new fiscal changes introduced by the Government overnight, without consulting the business environment, without any impact study, if there will be no money in the state budget. (...) We have received signals that, following the fiscal changes at the end of 2023, the real estate sector is affected, because sales have decreased, and not necessarily because of the increase in VAT, but because of the increase in interest rates".

His Lordship specified that, despite the fiscal changes made by the Government, we still have positive taxation at the level of Central European countries, which attracts foreign investors, but we also have disadvantages represented by the statements of some political leaders regarding future fiscal changes, which have not based on no impact study, as well as the fact that, although ANAF has started to digitize, the degree of reform that had to be achieved so far is far below expectations. Another disadvantage is, in the opinion of the representative of the Taxhouse-Taxand Romania company, the excessive taxation of labor, a chapter in which we rank first in Europe.

Angela Roşca also said: "We still have a partially non-functional administrative litigation and a slow judicial system with uneven practices and decisions. (...) Nevertheless, Romania remains attractive from the perspective of the single rate of profit tax and the fiscal regime applicable to holding companies".

The topic of ANAF digitalization and reform was also addressed by Ionuţ Simion, Partner at PwC Romania, who said that the public institution had to accelerate the pace of reforms under the rule of the National Recovery and Resilience Plan deadlines.

Ionut Simion pointed out: "All the adopted systems - e-Invoice, e-Transport, Saf-T, electronic cash registers, e-Sigil and e-TVA - move us into the era of digital reporting. In ANAF's opinion, the reports will increase the degree of coherence and accuracy of the transmitted data and, based on them, the risk analysis for companies will be made, and tax inspections will be targeted, for example on a single transaction or at the sector level. Unfortunately, the level of digital skills or competences of ANAF staff is low. You have digital reports for nothing, if there is no one to capitalize on them".

Therefore, the representative of PwC Romania believes that a training program is needed for ANAF staff to acquire the necessary digital skills, so that the fiscal reporting systems that will be interoperable at the level of 2026 can, based on the analysis of the large database, quickly calculate the fiscal risk for a certain sector of economic activity or for a company.

But in order to achieve this, stability is also needed at the level of ANAF leadership, Ionuţ Simion claims, who said: "There have been 15 presidents of ANAF in the last 20 years. If this staff rotation continues, it is unlikely that the integrated system will work in 2026 and we will have the risk analyses. For now, ANAF's biggest secret is the risk analysis".

• Gabriel Biriş: "Minimum turnover tax - the most toxic tax measure since split-VAT"

One of the most criticized tax measures at yesterday's debate was the minimum turnover tax for companies whose annual turnover exceeds 50 million euros, a measure that was introduced through Article 18¹ by Law 296/2023.

Gabriel Biriş, co-managing partner at Biriş Goran SPARL, stated: "The minimum turnover tax (IMCA) is the most toxic tax measure since split-VAT. IMCA is a recurring theme. The first time it was taken to the extreme in 2017, when in the government program of the Tudose Cabinet, an attempt was made to replace the profit tax with the minimum turnover tax. There were reactions, it was given up, but then they came with the solidarity tax for companies whose turnover exceeded 100 million euros and after that I saw with horror the introduction of the minimum turnover tax through Article 18¹ of Law 296/2023 for companies which have an annual turnover of more than 50 million euros, but small exceptions have been introduced here as well. (...) The introduction of the minimum turnover tax shows the incompetence of the state authorities. In fact, IMCA is not a tax on turnover but a tax on total income from which certain amounts are deducted. Unfortunately, although in some sectors of activity excise duties were removed from the turnover of producers, they remained at distributors, where the profit margins are 1% or a maximum of 1.5%, and the turnover for example at distributors of cigarettes or tobacco products is made up of 70% of the excise duties that have been removed from the calculation of the manufacturers' turnover. It is the same with the clawback tax from the pharma sector, which is also taken into account in the calculation of the annual turnover, and with royalties from oil and natural gas producers".

His lordship showed that the impact of IMCA will be negative on the business environment and that many companies in the distribution, but also in other sectors of activity, will have to close their business in order not to incur massive losses and to "not come with money from home".

Gabriel Biriş presented an analysis of the application of the minimum turnover tax at the level of the balance sheets reported for the year 2022, since the balance sheets for the year 2023 have not yet been submitted to the Ministry of Finance. From that analysis, it appears that in 2022 there were 1089 companies that registered a turnover of over 50 million euros in our country. The application of IMCA to these companies would have affected the turnover for 697 of them, companies that have a total of 624,100 employees. Of these, 142 companies (which have 171,800 employees) would have recorded losses if the minimum turnover tax had been applied to them and would have required a total financing requirement of 300 million to cover these losses euro.

Of the 697 affected companies, 95 companies (which have 100,100 employees) have a profit margin between 0 and 0.99%, and these companies would have recorded a loss of 85 million euros if IMCA had been applied.

The remaining 478 companies out of the 697 affected would also have recorded losses, companies with a profit margin between 1% and 6.25% of the turnover.

"Practically only companies that register a profit above 6.25% of the turnover would not be affected by the introduction of the minimum turnover tax, but the number of these companies is very small", concluded Gabriel Biriş.

Mr. Biriş said that under these conditions, the above companies may have to try to circumvent IMCA by dividing the company into several companies in order not to exceed the turnover of 50 million euros, for example by changing the business model from production to lohn , which would mean that they have income only from services, not from production sales, by moving the tax headquarters of the company to other states where they will only pay profit tax. His lordship specified, however, that all these things will lead to the major distortion of several economic sectors and additional difficulties for the state budget.

Gabriel Biriş also said that Marcel Boloş, the Minister of Public Finance, estimated that from the application of the minimum turnover tax to the state budget, additional revenues totaling 5 billion lei will be recorded, revenues which in the opinion of Mr. Biriş can be achieved from the 1% increase in VAT or other taxes and not from the destruction of some companies with a fairly large turnover.

• Local tax reform - the main challenge for 2025

The participants in the debate also talked about the main challenges for the business environment for the coming year. Alex Milcev drew attention to the substantial reformation, from January 1, 2025, of local taxes, which would increase to over 1% of GDP.

"The most impacted by this reform will be the owners of land and apartments who will pay much higher taxes and fees after the 2024 elections," warned Alex Milcev.

For her part, Angela Roşca showed that she expects a heated debate on the introduction of the progressive tax and mentioned that a generalized single rate is better for the whole economy and should be applied in the coming years.

The representative of PwC Romania, Ionuţ Simion, said that the state needs 30 billion lei in addition to the budget revenue collection estimates to reduce the budget deficit from 5% to 3% and that he does not believe that the existence of two types of tax on profit or a progressive tax would be sufficient to bring to the state budget the amount needed to meet the European deficit target.