Romanian Trade Register: Lump Sum Tax Drives Tens Of Thousands of Companies Into Dissolution

Cristina Mihalaşcu

The number of applications for voluntary suspension of business, voluntary dissolution and voluntary striking-off filed by companies registered in Romania has been increasing at alarming rates since the beginning of the year, according to statistics of the National Office of the Trade Register (ONRC). Such statistics indicate that tens of thousands of companies have been forced to close because of the lump sum tax recently imposed by the Finance Ministry.

Specifically, the number of applications for voluntary suspension of business increased by 1094% in 2009 to a countrywide total of 80,013 from 6,698 applications filed in 2008. The number of applications for voluntary dissolution increased by 351% from 1,838 in 2008 to 8,921 in 2009. As for voluntary striking-off, the number of cases increased by 200% to 17,914 in 2009.

Tax specialists believe that (small) companies have found an creative way to avoid paying the lump sum tax by transferring the business to natural persons. This would explain why ONRC statistics indicate a 32% increase in the number of self-employed natural persons registered for business (freelancers) compared to 2008.

• Ionel Blanculescu: The lump sum tax will be cancelled in September

Ionel Blanculescu, former Minister Delegate for Coordination of Governmental Audit, told BURSA that the introduction of the lump-sum tax was a failure and that the tax itself would not survive September.

"On the very first day when they adopted this tax, I said it was a bad idea. Six months after introducing it, they will conclude that the State collected nothing, so they will have to cancel it this Autumn," Blanculescu said. According to him, even if the lump sum tax is cancelled, it will not be possible to repair this mistake of the current Government, and the economy will suffer from its effects for a long time.

Additionally, Ionel Blanculescu pointed out that the term "lump sum tax" was misused, because the actual tax was applied differently for different volumes of business. "The term "lump sum tax" is misused. It is only mentioned in debates," he said. "The tax imposed by the Finance Ministry is a minimum tax, a form of revenue protection for the State, as the State applies it as a function of the profit made by the companies and not by the type of business, as a lump sum tax should be," he said.

Ionel Blanculescu believes that such tax amplifies the effects of the current economic crisis and will lead to a two-digit unemployment rate this Autumn, as increasingly more companies are closing because of it.