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News 31 Jan 18

Fiscal Changes Make Romanian Entrepreneurs Fear Bankruptcy

Romanian entrepreneurs are warning that a huge number of changes to the fiscal code and a climate of political uncertainty could lead many of them to impose cutbacks or even go out of business.

Ana Maria Luca
BIRN
Bucharest
The Romanian government building. Photo: Korinna/Wikimedia Commons.

Small businesses in Romania that don’t have enough cash to pay taxes and social welfare contributions on time could either cut their employees’ wages or shut down altogether because of a deluge of fiscal changes and general political uncertainty, small business owners say.

Entrepreneurs have been warning that over 290 changes in the fiscal code in just a year - including the imposition of new taxes - have caused confusion; they also accuse the government of acting unpredictably.

In one example, a pair of Canadians who opened a restaurant in Cluj Napoca in 2014 decided to close it at the start of this year because they could not afford to pay new taxes that the authorities have imposed.

“Unfortunately, the fiscal changes introduced by the national government last year have made things increasingly difficult for us, and the latest changes that came into effect as of January 1, 2018 have simply made it impossible to continue,” they wrote on the restaurant’s Facebook page.

Other business owners feel that the government is not sensitive to the difficulties of running a company.

“It is very clear to me that the purpose of all these changes was to make it impossible for small businesses to pay even one cent to an employee without declaring it,” Valeriu Popescu, the owner of a small constructions consultancy, told BIRN.

“In principle, that is absolutely legitimate, but in practice it’s bound to kill many small companies, especially commercial ones that survived by paying employees as part-timers,” he added.

Popescu said that smaller companies suffer because bigger firms do not pay them on time for contract work, and that it is very difficult for small and medium businesses to survive in Romania and pay their taxes on time.

“Basically every day is a struggle to pay debts, pay salaries, pay social contributions, and taxes on wages,” he said.

Until now, businesses could make deals with the tax authority to pay their debts, but the new fiscal code doesn’t tolerate delays, and some company owners even face prison time.

For self-employed professionals and freelancers with fluctuating earnings, the outlook also looked difficult at the start of the year.

The new fiscal code initially required them to submit a statement of income for 2018 in advance, despite the fact that their incomes rarely remain constant.  

After the measure caused anxiety among taxpayers, the Ministry of Finance cancelled it on Tuesday.

But some professionals say they still feel anxious about government decisions.

“I’ve submitted that statement although it did not make any sense to me to declare income that I haven’t yet cashed,” Corina Ionescu, a marketing consultant, told BIRN.

“I spent a whole day at the fiscal authority office to be able to submit it and now we find out it was cancelled. It’s becoming harder and harder to survive without knowing what’s going to happen tomorrow,” she added.

Romania’s new fiscal code came into force on January 1, 2018 and, among other changes, it transferred the responsibility for the payment of social welfare contributions from the employer to the employees.

It reduced income tax from 16 per cent to 10 per cent and labelled all companies with revenues lower than one million euros as small businesses.

Employers can now face jail if they don’t pay their taxes and social contributions.

However, the code might still be subject to changes, because parliament has yet to approve it. 

Romania has 660,000 registered companies, and 600,000 of them are small and medium-sized enterprises. 

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