The Government's intention to significantly modify the tax system starting 1 January 2018 to reduce the income tax rate from 16% to 10% and mandatory social contributions from 39.25% to 35.00% has led to intense debates, both in the political environment and in the business environment.
From next year, mandatory social contributions will be due only by the employee, but the obligation to set, withhold and pay them to social security budgets will continue to return to the employer by withholding the relevant amount. Thus, Romania will become the only country in the European Union that leaves social contributions exclusively in the tax burden of employees.
So far, the draft bill of this legislative initiative has not been presented to the public. The Ministry of Public Finance has issued a press release stating that the measures will not involve an increase in wage costs for the employer, and that the employee's net income will not be affected by the drop in the income tax rate from 16% to 10%. At the same time, the communiqué states that, by applying this measure, the employee will increase the score taken into account when determining the pension and, implicitly, a higher pension.
However, in the absence of a draft of this legislative proposal that will practically revolutionize how individuals tax their income, it is difficult to assess the impact of these measures on the net incomes of Romanians, in the context of fears that the passage of CAS and CASS entirely to employees could bring 22% net salary cuts.
In order to avoid that employees are affected by the passage of CAS and CASS entirely in their charge, the employer should raise their gross wages by 22.75%, but the imposition by law of such a solution for the private sector would be questionable because the state can not require the modification of private agreements (labor contracts) without the consent of the parties.
"Although different pros and cons can be brought forward in connection with these changes, the way they are introduced leads to major disruptions in companies. Correlation with other announced tax measures (eg split VAT) will be equivalent to a real earthquake in financial departments. Immediate effects will include increasing insolvency, falling investment and productivity in the economy, but maintaining a low tax collection rate, as other types of measures would improve these key indicators for Romania", says Florentina Şuşnea, Managing Partner , PKF Finconta.
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For more than 22 years, PKF Finconta is one of the 10 leading professional services companies in Romania. Since 2006, we are a member of PKF International Limited. PKF International is a leading international business advisory organization. The company grew consistently over the years, forming a Group of four companies: PKF Finconta, PKF Finconta Consultanta, PKF Finconta HR and Finconta Consulting SPRL, members of national professional organizations CECCAR, CAFR, CCFR and UNPIR. We provide a wide range of business advisory and related specialist services. We have seven core areas of expertise and within these areas, we tailor our services to your business and your needs: audit, corporate finance, tax, bookkeeping and accounting advisory services, transfer pricing, payroll and personnel administration and insolvency.
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