Romania Stands By Flat Tax

by Ulrika Lomas, Tax-News.com, Brussels

20 July 2010

During a recent gathering of small- and medium-sized enterprises in Bucharest, Romania’s Prime Minister Emil Boc announced government plans to maintain the flat tax of 16% imposed on income and profits, while also confirming plans to abolish the minimum tax from the autumn.

Emphasizing that maintaining the flat tax was a fundamental objective of the government, Prime Minister Boc confirmed that the existing system would not be replaced by a progressive system of taxation, as it would not serve to generate additional income for the state budget. The government therefore has no reason to abolish the flat tax, Boc reasoned, which is also a symbol of stability and coherence of economic activity.

Romanian Finance Minister Sebastian Vladescu had urged the government to move from the flat tax system of income tax, representing a bygone era, to a system of progressive rates, vital to supporting the state.

Severely affected by the recession since 2008, Romania adopted a draconian austerity package, including measures providing for a 25% reduction in public sector wages. The government also increased the rate of value-added tax from 19% to 24% from July 1.

Agreed with both the International Monetary Fund and the European Union, the austerity package was in exchange for a EUR20bn loan, enabling the government to reduce the country’s public deficit to 6.8% of gross domestic product this year (from 7.2% last year).

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