Senators approve a dream: the cut of the flat tax rate to 10%

• Iulian Urban claims that the Government will eventually pass this bill

The Commission for budget, finance, banking activities and capital markets approved the cut of the flat tax rate from 16% to 10%, said PDL senator Iulian Urban, the backer of this legislative proposal to amend the law No. 571/2010 concerning the Fiscal Code.

He said: "If the tax rate gets cut to 10% starting with January 2010, we will clearly see an increase in tax receipts in 2011, by at least 10% according to my estimates, and perhaps a greater economic growth than was initially forecast. It is obvious that Romania will attract more foreign investors, especially since Hungary and Bulgaria have already taken steps to cut income taxes.

What"s more, the cut of the flat rate tax will provide a much needed respite for companies, certified sole traders (PFA), and freelancers. The 6% cut would stimulate companies to make profits and will raise the confidence of businesspeople in the fiscal measures proposed by the government".

For the draft bill to come into effect starting January 1st, it needs to be voted by the Senate, then by the Chamber of Deputies, which has the deciding power. However, the representatives of the Government have opposed the bill, alleging a negative impact of 5.2 billion lei on the state budget for 2011. Iulian Urban commented: "It"s obvious we won"t have a deficit, but rather a surplus. These are examples of states that took such steps and were successful. Not even the IMF can oppose the implementation of a low tax rate because it is a creditor of the state and it would be in its interest as well to see an improvement in the collection of taxes and see the revenues to the budget increase".

According to senator Urban, the legislative proposal must be adopted via emergency vote, in the Chamber of Deputies, in November, to reach its expected effects in 2011. He claims that businesspeople will receive a pleasant surprise from the Government, even if the representatives of the Government said they did not approve of this project: "I think that the government will approve the cut of the flat rate. We are already making strategies and analyzing its impact on the budget".

Iulian Urban estimates that after the cut of the flat tax rate from 16 to 10%, the next step towards an economic recovery and attracting more foreign investors would be to cut social security contributions: "Until now, we have worked towards taxing the gray and black sides of the economy, operating wage cuts and restructuring the public sector. After this unpleasant but much needed < medicine >, it is time for the Government to feed vitamins to the economy".

The PDL senator also claims that there is a need to elaborate a system for stimulating investments in the Romanian economy and considers that the application of a progressive tax as proposed by the PSD is not wrong in itself, but it can only be implemented after 4-5 years of economic growth.