In the last two years, tax changes have been more frenetic and more exotic than ever. We could say that we are in the face of a perpetual tax revolution, or rather, we are in the face of a tax revolution on an ongoing basis.
This continuous apparently chaotic turmoil and creates the impression that everything that has been regulated so far has to be changed in one form or another and in this way the concept of stability and predictability is completely destroyed.
It seems like everything is reset and rewritten in a way known only by the initiators of the changes. There is a sense that dialogue is useless as long as initiators have already "validated" the solutions.
If 2018 was considered a year fraught with multiple major changes, a so-called "year of tax revolution," in which substantial areas such as individual income taxation, the social contributions system, the way of calculating and declaring them, the regime of micro-enterprises, non-bank lending interest rate deductions, VAT rates in certain sectors etc., 2019 starts in an absolutely unexpected manner, with even more taxation changes, which by their size and impact affect important sectors of the economy and also the economy as a whole.
In 2018 the rhetoric and appearances were to reduce the tax burden and simplify how individual earnings were reported, while 2019 appears to be the year of introducing new more or less fiscal taxes.
The most striking and blatant changes did not necessarily have a pure fiscal component, meaning that they did not cover taxes regulated by the tax code, but consisted of introducing new taxes or contributions, as the case may be.
By far the most outstanding example is that of the tax on financial assets, also called the "tax on greed".
Through Emergency Ordinance 114 issued at the end of December 2018, the government instituted a tax on financial assets applicable to banking institutions when the quarterly average of the ROBOR interest exceeds the 2% benchmark. The tax rate is between 0.1% and 0.5% of the value of the financial assets in the accounting records depending on the level with which ROBOR exceeds the 2% reference threshold, at 3 months and 6 months respectively.
At the same time, ordinance 114 amends other acts as follows:
The Electricity and Natural Gas Act established a "contribution" of 2% of the turnover achieved by the economic operators carrying out activities highlighted by NRAE. This special tax is not immediately enforceable and shall come into force on January 1, 2022.
For granting the licenses for the use of radio frequencies and for the physical infrastructure of electronic communications networks, taxes are set at 2-4% of the turnover and the sanctioning of offences increases from 2% to 5% of the turnover for accidental deviations and from 5% to 10% of the turnover for repeated infringements.
For providers of electronic communications networks concluding contracts or performing works without the right of access or without a building permit, a fine of up to 10% of the turnover is established, in proportion to the number of users served without permit, 1% being added for every 100 users.
For gambling organizers, an annual fee of 2% of the total monthly fees is set. The provision shall apply from January 1, 2019.
In the case of privately managed pension funds, management fees have been reduced from a maximum of 2.5% to 1%. At the same time, the monthly component in relation to the fund's total net assets was reduced from 0.5% to 0.02-0.07%.
In the strictly fiscal field, GEO 114 introduces a set of tax incentives for the construction sector aimed at reducing the phenomenon of undeclared work.
Thus, for the period between January 1, 2019 - December 31, 2028, the individuals who acquire income from salaries or similar in a range of RON 3.000-30.000, from employers who carry out activities in construction, whose turnover from construction activities is at least 80% of the total turnover, are subject to the following benefits:
- Exemption from payment of salary tax;
- Exemption from the payment of the social healthcare insurance contribution, said individuals being insured without payment of the contribution;
- A decrease in the social security contribution due from the employee from 25% to 21.25%;
- Exemption from payment of social contributions due by employers;
- The insurance contribution for work is reduced to 0.34%.
And for the year 2019 in the construction sector, the gross minimum wage guaranteed for payment, without bonuses and other additions, was set at 3,000 lei per month.
Another act, published in January 2019, namely Law 30/2019 on the adoption of the Emergency Ordinance 25/2018, also brings many amendments to both the tax code and the tax procedure code, such as:
- Modifying the procedure for deducting interest expenses for non-banking loans to increase the deductibility limit from EUR 200,000 to EUR 1,000,000 per year and the additional percentage increases from 10% to 30%.
- The procedure for adjusting the value added tax for goods and services sold to entities in the bankruptcy procedure is modified. Regularization is allowed at the date of the bankruptcy decision, and not at the date of the court's decision to close the bankruptcy procedure, as it has been up to now.
- Some restrictions on the use of the 5% reduced VAT rate on real estate property purchases are eliminated. Thus, restrictions on the maximum land surface area of 250 square meters and the limitation of acquisitions to a single piece of property were eliminated. At present, an unlimited number of buildings can be bought at 5% VAT rate, if the conditions imposed by the tax code are fulfilled;
- Taxation at 10% standard rate of individual earnings from virtual currency trading was introduced;
- The regulations on how to grant sponsorships have been modified as to grant tax incentives only if the sponsorship beneficiary is an entity enrolled in a special registry. In this respect NAFA will have to set up a registry of organizations / religious entities for which tax deductions are granted;
- The classification of taxpayers in risk classes was introduced: low, medium and high;
- A mediation procedure was introduced by which the tax authority is obliged, at the request of the taxpayer in a mandatory enforcement procedure, to hold a meeting with the taxpayer to analyze and clarify the extent of the tax liability as well as to analyze the financial situation of the debtor;
- The procedure for suspending the mandatory enforcement or its cancelation, as the case may be, was regulated in case a guarantee has been established in the form of a bank letter of guarantee or an insurance policy.
It should be noted that in the previous paragraphs there is only a brief presentation of the changes introduced during less than a month from the start of this year.
The list of all changes is much broader and encompasses many other tax matters such as taxing micro-enterprises, taxing individual incomes, granting cultural vouchers, the regime of special excise duties and taxes, local taxes, sovereign investment funds, etc.
From the simple enumeration of the recently adjusted regulatory domains, it can easily be concluded that the notion of "ongoing" tax revolution is not just a figure of speech but it primarily represents a pressing, difficult to understand reality, having an unpredictable impact as of right now.
So as not to end in a sad note I would say we might look only at the few tax incentives introduced in these acts (see the regime of interest deductibility, the mediation procedure), while ignoring at the same time the avalanche of less pleasant things, if we can...
By Alexandru Tabacu, Partner Voicu & Filipescu