Lower profit tax - next year

The profit tax will decrease, next year, from 25% to only 19% - announced yesterday Mr. Mihai Tanasescu, minister of Public Finance. The new level surprised even the businessmen who negotiated changes within the Fiscal Code with representatives of the Ministry of Public Finances. They underlined, however, that this is a normal measure to take, after many of neighboring countries already lowered the level of taxes. Mr. Gilbert Wood, President of the Foreign Investors Council, stated that "this comes right on time, and the new quota brings back Romania to a competitive position, amongst countries in the area". Mr. Roberto Musneci, president of the AmCham, made a similar declaration: "this is going to have a positive impact on companies with long-term investment strategies".

The decrease was announced a long time ago by the Ministry of Public Finance and was eagerly awaited by the business environment. But the level of the cut is surprising however, and it seems to be a last-moment decision of the Government. "I acknowledge that even for us it is a surprise" - stated Mr. Florin Pogonaru, AOAR president. A few weeks ago, officials from the Ministry of Public Finance declared that the budget cannot undertake less than 22% or 23% profit tax. Never before - said businessmen - officials of the MPF mentioned such a cut. "So far, we were told of about 23% or 22%, which means nothing. The new decision takes into account the competition to attract foreign investments" - said the AOAR representative.

Mr. Daniel Daianu, former Minister of Finance and currently teaching Economics at the University, congratulated the Ministry for this decision.

The Prime Minister, Mr. Adrian Nastase, seems to be the only one who anticipated this movement: in March he stated in the Parliament that the profit tax would be lowered to 20%.

In addition, the deductible amount would be extended - for example, the life cycle for assets would decrease - allowing companies to increase expenses for depreciation from 20% to 25%.

Fees for social security would also decrease by 2%, reaching 47.5%. The final amount is expected to reach 42% or 43% in 2005 (it was 61% in 2000).

The minister of Public Finance is still negotiating with businessmen the complete elimination of the tax on re-invested profit. "A decision should arise in less than ten days" - stated the Minister. According to the Prime Minister, businessmen will have the opportunity to make a choice between accelerated depreciation and not taxing re-invested profit.

All proposals issued by the Ministry of Public Finance on this topic will be submitted to the Government, endorsed through an Emergency Ordinance and debated within the Parliament after September the 1st.

According to the minister of Public Finance, the forecasted economic growth (5.2% for 2005) would increase budget revenues by ROL 94,000 billion if the fiscal framework will remain as it is. But excises will increase, according to agreements signed with the EU, and this would bring ROL 14,000 billion more to the budget. Another ROL 14,000 will be brought by a better collection of revenues. On the other hand, customs taxes will change for the ten new members of the EU and this would decrease revenues by ROL 5,000 billion.

Finally, dropping the profit tax will cost the budget approximately ROL 12,000 billion.

The final news concerns taxes on dividends: increases are expected for both companies (from 10% to 15%) and individuals (from 5% to 10%).