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Foreign Investors Council: New fiscal measures package puts investments under question mark
The Foreign Investors Council (FIC) has warned on the recent proposals for tax changes, which not only substantially change the tax legislation and introduce a series of new taxes or increases, but also cancel the fundamental principle of the Tax Code that granted a 6-month period needed for businesses to adjust to the new rules.
According to an FIC press statement released on Thursday, for many of the new fiscal measures it is impossible to estimate the impact accurately; given the precarious situation of the budget and the economy, it is important that the measures are selected only according to the ability to estimate their impact.
"In the absence of major changes in managing the public finances, the reduction of expenses with the administration of public services, the improvement of collection, the assurance of fiscal equity and the reduction of grey zones, the sustainability of the state budget remains fragile."
At the same time, the disproportionate taxation of large taxpayers is threatening the ability of the economy to recover, with the risk that some companies will no longer be able to continue their activity in Romania because they will lose their profitability or migrate some activities to other EU countries. "Romania's competitiveness in relation to other states could be endangered by such turnover taxation, this practice being almost non-existent in developed countries. Also, turnover taxation can produce competitive distortions even in the domestic market, favouring firms already present in a market compared to newly created firms and creating unequal conditions of competition among competing producers of similar goods," added FIC.
Additionally, the acceleration of the legislative process that aims to produce substantial changes to the Tax Code jeopardises the confidence of investors in Romania. "It is vital that the package of legislative acts is discussed and analysed together with the business environment in order to have a complete picture of the medium and long-term effects on the real economy, and implicitly, on society."
Private investments represent one of the engines of economic growth, but also one of the main sources of financing the state budget. FIC periodically analyses the perception of large investors on the economy in Romania, compared to other locations where the companies they represent are present, with the help of the tool called "Business Sentiment Index" (BSI).
Over the 10 years that FIC has conducted this CEO survey, the stability and predictability of the fiscal framework have remained vital criteria for private investment. The last months of uncertainty are also reflected in the latest data submitted by the National Bank of Romania (BNR) regarding FDI, which shows that foreign direct investment in Romania decreased by 14% in H1 2023, y-o-y.
Romania is in an important process of joining the Organisation for Economic Co-operation and Development (OECD), an organisation that has as one of the objectives to promote inclusive and sustainable growth worldwide through international co-operation and policy reforms in support of sustainable investment. The recently published measures will hinder and delay Romania's process of alignment with the standards imposed by the OECD for sustainable economic growth and investment support, according to FIC.