Foreclosing on petty household items

• Thousands of small companies are being foreclosed on for small outstanding debts, but this measure has dramatic effects: taxpayers are closing down their businesses, and as a result the state gets left with baubles, which it even has to pay to store

More and more small business owners complain about the Tax Administration foreclosing on them for small outstanding debts they can"t pay because of the crisis. some of the companies have small debts, but the state mercilessly sells anything they find in their offices: from beds, tables, chairs, to mattresses or other items of low value.

The newspapers are filled with ads in which the National Tax Administration Agency auctions off the assets of companies, from apartments and land, to cars, computers or furniture.

The situation is tragic and ridiculous at the same time: The Tax Department of Băileşti wants to make nice money for the state budget by selling a stainless steel kitchen sink and an extensible bed with mattress, the one in Bacău thinks it can cover the company"s outstanding debt by selling a set of painting frames, and the one in Suceava announces the sale of a freezer box, and the examples could go on... The state is looking more like a small-time crook, who, come spring, goes to seize the goslings of the unfortunate peasants that can"t pay the land tax owed to their master.

Of course, given the current budget constraints, the state is entitled to resort to foreclosures in order to recover the amounts it is owed, but small entrepreneurs say that if that is the case, the state should turn its attention to the major debtors that have important assets, instead of selling the assets of small businesses and selling them for pennies.

And the numbers show that small business owners are right: the list of major debtors which have outstanding debts to the state, includes 448 companies whose total outstanding debt amounted to around 1 billion Euros on December 31st 2009.

• CNIPMMR: "The chances of turning around a company which entered foreclosure are minimal"

For a business owner whose company entered foreclosure, the chances of turning things around are minimal, the leaders of professional business associations say. They warn that foreclosures on small businesses will turn into a mass phenomenon.

"This is a phenomenon which is expanding, and due to the strain the state budget is experiencing, it will become increasingly common", said Florin Pârvu, the vice-president of the National Council of Small and Medium Private Enterprises of Romania (CNIPMMR).

Florin Pârvu also explained: "Most of the time, the chances of a small company recovering after a foreclosure are minimal. An immediate effect of such a measure is that such an owner would be forced to layoff the two or three employees it had and eventually give up completely. What does the state have to gain from foreclosing on a company with a share capital of just 200 lei?".

The vice-president of CNIPMMR also claims that the state is discriminating against small business owners, as major companies which have large unpaid debt are not being strongarmed by the Tax Administration.

• Companies closing down before the introduction of the lump sum tax

Last but not least, Florin Pârvu also warns that business people resorted to refinancing their loans in the beginning of the year to allow them to continue their operations, because they relied on the promise of the state that it would eliminate the minimum tax in the beginning of 2010, by turning it in a lump sum tax for certain types of businesses.

As the government has yet to keep that promise, many small business owners who borrowed money from banks, their relatives or even from loan sharks, could now see themselves forced to shutter their businesses, as for some of them the situation is dire. Besides, the minimum tax which was announced caused a flurry of bankruptcies and thousands of companies suspending their operations. This will result in decreasing the tax base and rising unemployment.

Business people who borrowed from other companies in the group, from shareholders or associates, and who had managed to get their business back on track to an extent as a result, had the unpleasant surprise to find out that the Government intends to cut the deductibility level for interest rates from 8% to 6%, through a draft bill which is currently under public debate, which is intended to revise the Tax Code. Business environment representatives are against the project, and the Government says that the revision of this project is needed due to the current economic circumstances.

• Experts propose fiscal mediation

Legal experts consider that the state is making a big mistake when abusing foreclosures against the business environment, in particular against small business owners.

Some of them consider that legal reorganization of the companies would be a better alternative, whereas other experts suggest that Romania should implement fiscal mediation.

Zeno Sustac, (co-chairman of the Romanian National Union of Mediators), a lawyer specializing in bankruptcy and mediation explained what tax mediation entails: "It is an extremely useful concept, in the current crisis environment, even though it is not included in the Romanian legislation, but which is being used in other EU countries and even in the Republic of Moldova. Using fiscal mediation, individuals, companies and the state, with the help of a mediator, can come up with a plan for rescheduling payments and thus avoid foreclosure. While for the Tax Department a rescheduling of payments won"t make much of a difference, for a businessman it can be the element that can allow him to avoid bankruptcy".

Zeno Sustac added that a civilized state must have alternatives to the measures intended to constrain businesses into paying their taxes, as foreclosure should be the method of last resort, precisely to avoid killing off its taxpayers.