The fiscal revolution anticipated by Ziarul Financiar last month is about to happen: Finance minister Mihai Tanasescu has officially confirmed the information initially released by governmental sources, stating he will present the draft to replace the five income category taxation system (ranging from 18% to 40%) with a single tax quota during the Government session today. The exact quota is to be set during the talks of the Cabinet members.
Tanasescu says that economic calculations show the single quota should be somewhere between 22-24%. The ideal level for the budget would be 22.7%, which should lead to a 23% quota if rounded up.
Finance Ministry experts conducted simulations as to the outcome of the budgetary revenues in case tax quotas of 16%, 18% or 19.6% were introduced. These quotas, however, did not take into account the increased deductions the Social-Democrat Government would grant to compensate the losses the low-income taxpayers would sustain in case a quota above 18%, the current minimal quota, was introduced.
The single quota idea started being debated throughout June-July and is supported by Prime Minister Adrian Nastase. It was also discussed with the PSD (Social Democrat Party) MPs. The only obstacle in the way of enacting such a fiscal reform measure would be International Monetary Fund's opposition, as its mission that was in Bucharest in August was not notified of this plan, so that the Fund is now demanding explanations and guarantees the budgetary revenue targets will be attained.
Nastase is leaning towards an 18% quota, which would entail higher costs for the budget.
The single quota will benefit those with high-wages first of all, but these wages should be registered in their employment books, though.
"Introducing a single quota will cut the administration costs and ensure higher incomes for employees, as it will come with regressive deductibilities," Finance minister Mihai Tanasescu said.
The proposition will be included in the Fiscal Code draft set to enforce as of January 1, 2004.
The Finance minister explained a 22-24% taxation quota would come with a deduction that would gradually decrease reversely proportional with the amount of income, so that the employees would not get less money than they used to.
For instance, the deductibility basis for a gross salary of up to 12 million ROL should increase from 1.8 million ROL to 3.5 million ROL, while the incomes up to 25 million ROL should get a 2 million ROL deductibility. There will be no more deductions beyond this amount.
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