FIC: Unpredictability of fiscal measures reduces investor confidence

The ordinance adopted by the Government, which also includes the introduction of new taxes and tax increases, did not provide the necessary time for a careful analysis by the business environment and the failure to respect the deadlines for public consultation in the legislative process is a negative signal that increases the degree of uncertainty for the future of investment in Romania, according to the Foreign Investors Council (FIC). In a press release sent on Monday night, FIC welcomes the efforts of the government to reduce expenditure but they say there was no time for the business community to express viewpoints.The organisation reminds the fact that Romania has been in a difficult budgetary context since 2019 and has drawn the attention since the beginning of this year that a balance approach on the part of the authorities is necessary to ensure keeping the assumed deficit for 2024."Thus, the consultation period of less than 24 hours is not justified for the adoption of tax measures that have not been discussed in advance with the business community. Also, the adoption of tax measures at the end of the year with immediate application from 1 January disrupts business plans and budgets prepared by companies for next year, increasing unpredictability and reducing the appetite for future investment. It is imperative that there is a realistic timetable for the implementation of the new measures to ensure that companies have the necessary time to apply the new rules," the paper said.   At the same time, the representatives of foreign investors require the authorities in Bucharest to give up the introduction of fiscal measures to overtax investments such as the reintroduction of the pole tax, which proved inefficient in the past as well.‘Taking into consideration the difficult situation of the state budget, the authorities must approach the issues with a medium-long term vision and encourage the economy and the private investments, so that the main contributions to the state budget increase during the period to come and not contract, the introduction of taxes which do not represent a European practice, as was the case with the minimum tax on turnover and now with the reintroduction of the  ‘pole tax’ does not have the anticipated effect of increasing budget revenues, as confirmed by the data published by the ANAF. These measures represent the over taxation of private investments and lead to the loss of Romania’s competitiveness in relation to other countries, have a negative impact on the investment climate, the economy as a whole, and subsequently on the state budget, with foreign investments failing in the first ten months of 2024 by 7% compared to the same period last year according to NBR data’, said FIC President Daniel Anghel, quoted in the statement.   At the same time, FIC recommends four principles to support the fiscal reform so that twin deficits be reduced, and the Romanian economy continue to develop.Firstly, according to the quoted source, the authorities must support competitiveness of the country through a single taxation mechanism which could ensure predictability and stability necessary for private investments. Coming back to the single tax rate, a simple system to be implemented, both for the tax payers and for the authorities, is essential for economic growth, in order to avoid distortions and for the reduction of fiscal evasion, considers the organisation.Secondly, the fiscal reform must ensure fiscal fairness through the elimination of exemptions, abolishing the minimum turnover tax and capping CAS and CASS.At the same time, tax reform must introduce task distribution equally, between the public and the private sectors. Thus, it is important that the budgetary adjustment plan ensure equal contributions between the reduction of public expenses and the growth of the income to the state budget.Moreover, the tax reform must rely on real digitization and de-bureaucratisation through the implementation of a set of KPI for the increase of collection and monitoring the implementation of the measures and reforms undertaken in the NRRP, say the document."Foreign direct investment is a crucial factor for Romania, an economy in need of convergence and development, especially in the coming years when the private sector will need to continue to invest even more in order to maintain the growth rate of the Romanian economy in the context of the budget deficit reduction. Investor confidence is based on dialogue with the authorities and the predictability of public policies. The FIC will continue to work with the Romanian authorities to identify the best directions and measures to stimulate investment and long-term economic growth, as well as to ensure a fair and competitive fiscal environment. But in order to be able to contribute effectively to the government's fiscal recovery efforts, we need to have reasonable consultation periods in order to be a real part of the debate," the communiqué emphasises. In Monday's meeting, the government approved several tax measures contained in the ''little train ordinance'', including an increase in dividend tax from 8% to 10% and a reduction in the tax threshold for micro-enterprises from €500,000 to €250,000, including during the tax year, and from 1 January 2026 to €100,000. A 1% tax on special constructions (pole tax) has also been introduced and wage and pension freezes in the budgetary sector have been decided. Tax breaks for people employed in the IT, construction and agriculture sectors were abolished.