For American investors in our country, the major problem is the lack of fiscal predictability

The lack of fiscal predictability is an acute problem for American investors in our country, the representatives of the American Chamber of Commerce in Romania (AmCham) stated yesterday, during the press conference in which they presented the sixth edition of the Barometer on the quality of the investment climate.

According to the Barometer in which 235 companies from the 570 member companies of AmCham participated, only 19% of respondents believe that we have a competitive tax system, which represents a 10% decrease compared to 2023. According to Amcham representatives, one reason for this decrease is the 1% tax applied to the turnover of companies whose turnover exceeds 50 million euros, a tax introduced last year, but applied starting from 2024.

According to the work prepared by AmCham, the minimum tax on turnover significantly impacted 39% of American companies in our country, and that is why the representatives of the organization believe that this tax of 1% on turnover is unfair.

Vlad Boeriu, Chair Taxation Committee and member of the AmCham Board of Directors said: "I think the impact of the new minimum tax on turnover was the most debated topic in the business environment last year. AmCham continues to claim that this tax is unfair, generating anti-competitive and inflationary effects. A tax that was introduced untimely and, as a result, generated inadvertences and anomalies that the business environment continues to face. Most importantly, 39% of our survey respondents felt that this tax had a significant impact on their business. The introduction of this tax was part of a package that also concerned the reduction of budget expenditures. Unfortunately, I did not see this. From the beginning there has been talk of a temporary tax, initially for one year, then for two years, and we still believe that once it has been introduced, there should be a clear timetable for phasing out this tax which does not necessarily bring the expected level of budget revenues and creates big problems for players in the economy".

His Lordship specified that, regarding this tax, there were also inadvertences that generated the application of taxes to taxes.

Vlad Boeriu said: "In addition to the significantly higher cost with the taxation that they have to bear, we are also talking about certain inadvertences. First, it applies to many other taxes that taxpayers are required to collect on behalf of the state, whether we're talking about Special Environmental Fund Taxes, Special Energy Taxes, Bag Tax, Clawback Tax, Excise and the like taxes that are included in the tax base of this 1% tax. Of course, a tax levy is not fair. Then, we have Research and Development expenses. In general, Romania needs a much greater focus on Research and Development and then, again, they should, in our opinion, be excluded from the tax base of this 1%. Then, exchange rate differences if they are unfavorable are not taken into account in the calculation of the 1% tax. In certain months, taxpayers may lose from the exchange rate difference, in other months they may gain. The profit part will be taxed, while the loss part is not taken into account".

He mentioned that adjustments are also needed regarding the external tax credit, showing that a Romanian taxpayer who obtains income from abroad pays tax once in the respective country, having a permanent establishment from a fiscal point of view, then returns with the respective income in Romania and is charged once more with this 1%.

Vlad Boeriu said: "Romania has concluded treaties to avoid double taxation with many countries. It provides for a tax exemption or obtaining a tax credit for the tax paid in the other country. If we have a Romanian taxpayer who obtains income from abroad, pays tax once in that country, having a permanent establishment from a fiscal point of view, returns with that income to Romania and is taxed once more with this 1%. These are adjustments that we see necessary to be implemented as soon as possible, until, we hope, this tax will be eliminated, as was originally intended. Taxation has been seen as a competitive advantage and I don't think it is the time or the position for Romania to lose this competitive advantage. From the answers received in the past years, one third of the respondents considered the tax system to be a competitive advantage of the country. This year, the share is only 19%".

• AmCham supports the generalization of the single tax rate of 16%

The discussions within the governing coalition regarding a possible increase in the VAT rate also came to the attention of the financial expert from framework of AmCham which showed: "The VAT increase is an emergency measure, in the sense that it is a measure that clearly leads to an immediate increase in collected revenues, on the one hand, but the generalized application or the generalized impact it has denotes a lack of direction, analysis, structure. My opinion is that we will talk about an increase in VAT only to the extent that we will not be able to place the fiscal system on some foundations that will help us economically, at least in the medium term. I can't exclude this risk, I'm just saying that we end up in such a risk or in such a situation, if we don't have a strategy and then I end up in a situation where I urgently need money in the budget without thinking which are the medium-term implications or actually, where should I collect more from, from which sectors of the economy, from which part of the taxpayers. Then I apply a measure that immediately brings us a lot of money. If you want, I'm treating a symptom, I'm not treating a cause with an increase in the VAT rate",

He recalled that VAT was increased only once during the economic crisis of 2008-2009.

Vlad Boeriu also said: "VAT has the ability to bring you a lot of money very quickly, but it does not mean that it is a measure that helps you in any way to economic growth, to stability, but you only solve this problem in a term very short, with heavy long-term effects. We are again talking about an increase in inflation, affecting the entire population, regardless of whether we are talking about employees, pensioners or other categories of people".

Regarding the need to reduce the budget deficit, Cristian Sporiş, the president of AmCham Romania, stated that it will be necessary not only to increase taxes, but also to take measures on the side of budget expenses.

Cristian Sporiş said: "Budget revenues could be higher by more than 1.6% of GDP if the generalized single quota of 16%, as it was, is returned. The recommendation and what we are advocating is to reinstate the single quota premise. We together with the members support this. But to address this budget deficit, it will have to be a collaboration and cooperation and action must be taken on both sides, and on the spending side, and in the gray economy area, where everyone will have to contribute to the state budget, according to the activity which it carries out",

According to the estimates of financial institutions and even the European Commission, the budget deficit of our country could reach at the end of 2024 almost 7% of the Gross Domestic Product, with two percentage points above the 5% provided in the state budget law for the current year, which which would make the increase in fees and taxes inevitable from 2025. Therefore, Mr. Sporiş believes that, in addition to the generalization of the single rate of 16%, we may also witness an increase of 2 percentage points in the current VAT rate, a measure that would bring more money to the state budget, but which will lead to a decrease in the purchasing power of citizens.

• Positive perception of the investment environment

However, from the 6th edition of the AmCham Barometer regarding the quality of the investment climate in Romania, it appears that the level of appreciation of the investment climate remains predominantly positive in the opinion of 46% of the respondents, with even intentions to increase operations and investment plans in 2024 in our country.

Regarding the investment climate as a whole, this year's positive percentage is similar to the level of appreciation in the post-pandemic year 2021 and well above 2019 (36%), but down from 51%, as it was in 2023 .

The positive outlook is supported by business results achieved in line with the expected level in terms of revenues (63%) and investments (51%). For the year 2024, the companies anticipate similar performances, with only a few percent less in terms of growth, on all three levels, including number of employees.

Cristian Sporiş, president of AmCham said: "Romania is the best investment destination in the region. This is the message that AmCham sends to potential investors at every opportunity, and we rely on the optimism of the members, the positive business results and their plans to invest further. The main anchors of confidence remain Romania's status as a member of the European Union, NATO membership and the prospect of joining the OECD, while, from the point of view of business plans and investment returns, the most convincing advantages are human capital, market size, the quality of the digital infrastructure and, very importantly, the fiscal framework. This aspect is significant as the level of taxation and the fiscal framework not only attract investment, but are essential for it to develop and generate prosperity. Against the backdrop of last year's fiscal measures, which did not have the effect of reducing the budget deficit, the fiscal system is back among the main concerns of the business environment, a context in which we were supporting AmCham Romania for maintaining the system of the single tax rate, still the most suitable option for the stage of development and complexity of the Romanian economy".

• Transport infrastructure and bureaucracy on the top of the impediments

In terms of the most valued market conditions, the quality of the digital infrastructure ranks first for the sixth year in a row, with 60%, followed by the quality of human capital (52%), which is increasing in importance and as a cumulative percentage compared to the editions previous. Two other conditions close to the first two are highly valued, namely the quality of cyber infrastructure (35%) and digital skills (21%), found among the active population in the labor market, as well as the quality and resilience of supply chains valued by 30% of respondents.

In contrast, the list of the least appreciated market conditions is established by the qualifications of "weak&precarious" given by the companies participating in the survey. The first 3 positions are, in the same order, the conditions that attract the greatest dissatisfaction. With 78%, the quality of transport infrastructure still outranks de-bureaucratization, which remains in 2nd place with 72%, followed by the quality of health infrastructure (70%). More than half of the respondents rate the predictability of the investment framework and the economic and industrial policy as weak and precarious (51%).

Daniela Nemoianu, Vice-President of AmCham stated: "We want to draw attention to the fact that the list of priority economic measures and public policies resulting from this edition of the survey reflects, rather, the need for interventions to improve those market conditions that are still a brake for the development of companies and the economy as a whole. Along with investments in critical infrastructures, which remains the main priority, maintaining a competitive tax system and reducing labor taxation, digitizing public services, AmCham members also consider important for the year 2024 a high degree of absorption and use of European funding, available still at a record level and from which Romania will not benefit for too long, once it reaches a certain threshold of convergence with the European Union. Although included for the first time as an option in this year's edition, more than half of the respondents indicated that it is very necessary to increase the quality of the education system. For years, the business community has been signaling the need for reform in education and for calibrating the system with the dynamics and demands of the economy, and is getting involved in very concrete ways, including substantial CSR investments, to support this change. Both the quantity and the quality of graduates at all levels of the education system have a direct socio-economic impact. Education is one of the structural causes of the current labor shortage, but there are several solutions for education to become a real vector of growth and added value at the individual, community and societal level".

• AmCham companies prefer to be self-financed

For the first time in recent years, the AmCham survey reflects a slight easing of tension in the labor market. The percentage of those who rated the labor market as tense, that is, they also face the difficulty of finding qualified employees, but also with cost increases, decreased from 94% to 88%.

Dinu Bumbăcea, Vice-President of AmCham stated: "This relaxation is, rather, the result of restructuring in some industries, investments in automation and less the result of measures to address structural causes. Further, most companies are struggling to find qualified employees while experiencing increasing pressure on staff budgets. Our call for interventions to fix the deficit remains as strong as possible to avoid labor market tension becoming a macroeconomic risk factor. Companies are already allocating important resources to overcome both the challenges related to the national economic environment, such as the increase in the tax burden, the evolution of inflation, the increase in fixed expenses, the deepening of the budget deficit and the high degree of indebtedness, but also the global trends that have an impact on businesses, such as are AI, military conflicts, or alignment with sustainability goals".

In terms of financing, 91% of companies, compared to 86% last year, turn to their own funds, followed by loans from shareholders, and these in a slight increase, mentioned in the mix of financing sources by 69% of respondents . The share of loans from banks remains at a level similar to 2023. European funds are an option for 28% of respondents, a significantly lower percentage than the one accumulated in the previous edition. Other sources of funding, such as capital markets and private equity, are an option for less than 10% of respondents, while state aid, for the first time present in the survey, was indicated by 11% of companies. Only 17% anticipate decreases in financing costs, 38% expect increases, and 45% believe they will bear financing costs at the same level as in 2023.

The investment intentions of companies in Romania remain in a positive trend: 72% of companies have planned their investments in 2024. The consolidation of companies in Romania also makes it possible to open them to other markets, through foreign investments and exports. Of the companies surveyed, almost half have taken this step - 9% of all survey participants have both exports and investments, 9% have only investments, and 26% both.

Cristian Sporiş, the president of AmnCham believes that, as a whole, the members of the organization send a positive signal, they choose to invest and grow in Romania, and they have a legitimate expectation that the Government will respond to this trust through stable and transparent fiscal policies.

We mention that 235 of the total of 570 AmCham Romania member companies participated in the AmCham Barometer, at CEO or CFO level.

Of these, according to the ANAF classification, 46% are large taxpayers, 32% - medium taxpayers and 22% - small taxpayers.

The barometer was conducted between April 15 and May 31, 2024.