The tax code is imperfect, it needs to be rethought, and this is also the reason why we don’t have voluntary compliance at a high enough level, says Dan Schwartz, managing partner of RSM Romania, saying that we have more exceptions than rules.

“We do not have a definition of fiscal objects in the Fiscal Code. Therefore, any provision of the Code, which has an interpretation different from the general one, can be considered a tax benefit if it brings an advantage to the taxpayer,” he said at the TaxEU forum.

• “It is right? Is not it? In my opinion, this is not correct, but this is our Tax Code.”

“It’s not perfect, we all know that. This needs rethinking. If we do not have clear and precise tax legislation, we will not be able to achieve voluntary compliance at a high enough level to allow ANAF to collect the revenues necessary for the functioning of the Romanian public budget,” explained the tax expert.

Exceptions, according to him, are not presented in a separate section.

“They are scattered here and there. If you are interested in identifying and counting them, you will find that we have more exceptions than rules. This is important because with more exceptions than rules, it’s difficult for us as tax preparers and taxpayers to understand and follow,” Schwartz said.

• This means memorizing dozens of pages of tax regulations to know exactly if you are following them correctly. They are specific or general, temporary or unlimited.

Fiscal benefits have a specific nature: “they are provided, as a rule, at the level of fiscal policy to areas of interest for economic and social development.”

• They are general in nature as we find them in our Fiscal Code. It is difficult to say whether we are talking about real tax benefits, or fiction, or a myth.

• The temporary and limited nature should always be evaluated very carefully, because depending on the duration of their functioning, they can cause development or underdevelopment.

7 tax benefits effective on January 1, 2023

He gave several examples of tax benefits effective on January 1, 2023.

1. The income tax of micro-enterprises has been retained in the Fiscal Code.

“In my opinion, these are tax benefits deliberately given by the Romanian government to those who are just starting their activities or those whose activities are less developed, because they belong to the small business sector, which is the basis of the market economy. To what extent such an approach is theoretically correct can be discussed. In fact, we can’t talk about a real tax break,” Schwartz said.

2. Is the exemption from taxation of reinvested profits real or not? Is it fiction or reality?

“It is probably real, but due to its limited nature, it is only awarded for profits reinvested in fixed assets, technology, etc. This does not take into account the fact that in a developed market economy, any amount that is not distributed as dividends from the company’s profit, but remains in the company, helps the development of this company,” he stated.

• “This is even if it turns into an investment in the classic sense or turns into growth/development of that company, which is still an investment. Why? Because this company will make more profit.”

3. Tax reduction for companies with positive capital (OG 153/2020).

“This is not a liver disease, although it is presented as such. This is just an attempt by the Government to reduce the losses recorded in the company,” he said.

• “We must not forget that at the same time there is a legal instrument for companies that record losses at levels that lead to negative equity, which must be withdrawn from the market. No measures have been taken in this sense, and here the main companies that represent the problem are state-owned companies.”

4. Additional tax deduction in the amount of 50% of eligible research and development expenses.

“It was a fiction until recently because, in fact, it could not be applied. Well, it can be applied, but with very high risks. It was not possible to apply it correctly due to legislative ambiguity,” the expert noted.

5. Exemption from income tax of taxpayers who carry out exclusively scientific and research activities. Now it has become effective.

6. The ability to pay 1% tax on micro-enterprises, regardless of the level of annual income.

“This is an institution within an institution. Why was this option chosen? Probably to justify the cancellation of a specific tax,” Schwartz also noted.

7. The imposition of a reward is something concretely new in the legislation.

“We’ve been trying to fix this problem we’ve had for years. The fact that it has been settled can only be welcomed. Details are not the best. For example, the amounts given as a tip do not fall into the base of social contributions to an individual and are not included in the tax base (income/income tax or VAT of the taxpayer),” he said.

• “Question: When you tip 10% on the bill, does it apply to the price with or without VAT? If it applies to the price with VAT, why tip the tax payer to the government?”

“That means a 10% tip turns into 11-12%. We have to remember that we tip more because it is applied to the VAT price of Horeca products,” explains Dan Schwartz.

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