November elections are approaching in Romania to determine the country’s new political structure, and soon after there will be important decisions on taxation for 2025. As many readers are aware, Romania is subject to an excessive deficit procedure as early as 2020, through which it must submit to the European Commission a multi-year plan to bring the deficit back below the 3 percent of GDP threshold. Prime Minister Marcel Ciolacu said the government “has reached an agreement” with the European Commission on the fiscal plan to reduce the deficit and stressed that it is essential that the European Commission’s experts agree that Romania needs the required 7-year period to carry out major investment projects in the economy. “The fiscal plan proposes measures for the gradual reduction of the budget deficit to a sustainable level compatible with the requirements of the European Union. The goal is to reduce the deficit by 0.74 percent of GDP each year by adjusting spending and improving revenue collection. Through the assumed reforms, a fiscal deficit adjustment path is ensured for a period of 7 years, with the end point in 2031 with a fiscal deficit of 2.4 percent of GDP. The consolidation of public finances for the period 2025-2031 will take place within the values of the macroeconomic indicators envisaged by the TFEU, namely a budget deficit of 3 percent of GDP and public debt of less than 60 percent of GDP.” , the sources cited say.
Brussels asks Bucharest responds. “The NRP requires us to start removing tax exemptions. Yes, I think some exceptions will have to be removed in the future, but that does not mean we will go into the exceptions right away . These exceptions have been in place for almost 20 years and have brought benefits, creating an important hub in Romania,” said Marcel Ciolacu, quoted by News.ro. What are the tax exceptions ?
Elimination of contribution exemptions from certain sectors
In the government’s “Fiscal Plan for the Coming Years to Reduce Deficit, Debt Level through Fiscal Measures,” reference is also made to tax breaks. The government plans to eliminate tax breaks for construction, IT, agribusiness/agriculture
The node of micro enterprise
The European Commission has asked the governing coalition to reduce the turnover threshold to enjoy the microenterprise regie from the current 500,000 euros to 88,500 euros, government sources told Economedia. If Romania does not make a decision in the next six months, it will permanently lose 300 million euros from the PNRR, according to the sources cited.
The taxation of dividends
Another important piece of tax reform could (almost certainly) be the taxation of dividends, which currently stands at a rate of 8 percent. The modest taxation of capital income almost certainly could be an important resource for financing the state budget deficit. The question is not whether there will be an increase in the rate but rather by how much will it increase? Will it go to 16 percent? So the advice is to distribute all dividends by 12/31/24.
VAT and local taxes
Increasing the value-added tax is one of the other hypotheses under consideration by the government because it is easy and quick to implement. For local taxes, we recall that as early as June 2024, the ordinance was issued in which it was projected that as of January 1, 2025, all local taxes on any form of property would be increased.
It remains to be seen in the face of increases in general taxation what new services the Romanian state will be able to offer businesses and citizens.
