Gov't Renounces Tax On Reinvested Profit

• Companies will be able to choose between no tax on reinvested profit and accelerated amortization. This decision will be stipulated in The Fiscal Code and become effective as of January 1st, 2005

The Government has decided to renounce the tax on reinvested profit as of January 1st, 2005 and apply this measure as an alternative to accelerated amortization. The renunciation to the tax on reinvested profit has been ardently advocated by The Humanist Party (PUR) for over two years. This party even collected over 300,000 endorsement signatures for this initiative. Premier Adrian Nastase remarked that the parallel application of these two option looked complicated but was in fact much more efficient than the current system. He explained The Government's decision as a way of having two complementary working tools at the same time. He declined saying whether The Government would eventually renounce one of these two options and retain only the other.

PUR chairman Dan Voiculescu sees this initiative of his party as a way of helping the middle class. PUR believes that this essential walk of life can be consolidated through fiscal incentives to small enterprises. "Compared to the option of using the profit for the shareholders' personal purposes, or to the option of depositing it in banks, profit reinvestment is by far the best solution," he said. He stressed that PUR had authored this fiscal measure and managed to see it adopted with the support of the business community. He also mentioned that this one-time cooperation with the ruling party (PSD) was not a step towards a possible electoral alliance.

Several business associations have been asking The Government to renounce the tax on reinvested profit for several weeks. In response, The Finance Ministry tried to convince them that accelerated amortization (already stipulated in The Fiscal Code) was more advantageous to them.

Ministry of Finance representatives recently said that the full tax exemption for reinvested profit would only apply to procurement of equipment, machinery and technology, just as accelerated amortization did.

The changes to be made to The Fiscal Code, as negotiated between The Ministry of Finance and the business community, should be drawn up by early-May, pending application as of January 1st, 2005.