Foreign Investors Council: “The unpredictability of fiscal measures reduces investor confidence”

The Foreign Investors Council (FIC) states that fiscal stability and predictability are absolutely necessary attributes to build a relationship of trust between investors and public policymakers. Failure to comply with public consultation deadlines in the legislative process is a negative signal, which increases the degree of uncertainty for the future of investments in Romania.

FIC welcomes the Government’s efforts to reduce spending, but the emergency ordinance that also includes the introduction of new taxes and tax increases did not provide the necessary time for a careful analysis and for the formulation of points of view from the business environment, a release reads.

“Romania has been in a difficult budgetary context since 2019, and FIC has drawn attention since the beginning of 2024 to the fact that a balanced approach from the authorities is necessary to ensure the maintenance of the deficit assumed for this year. Thus, the consultation deadline of less than 24 hours is not justified for the adoption of fiscal measures that were not previously discussed with the business environment. Also, the adoption of fiscal measures at the end of the year with immediate application from January 1 disrupts the business plans and budgets prepared by companies for the next year, increasing unpredictability and reducing the appetite for future investments. It is imperative to have a realistic calendar for the implementation of the new measures to ensure the time needed for companies to apply the new rules,” according to FIC representatives.

”Given the difficult state budget situation, the authorities must approach the problems with a medium-long-term vision and encourage the economy and private investments so that the main contributions to the state budget will increase in the coming period and not contract. The introduction of taxes that do not represent a European practice, as was the case with the minimum turnover tax, and now reintroducing the “special construction tax” does not have the anticipated effect of increasing budget revenues, as confirmed by the data published by ANAF. These measures represent the over-taxation of private investments and lead to the loss of Romania’s competitiveness in relation to other states, having a negative impact on the investment climate, the economy as a whole, and subsequently on the state budget. Foreign investments decreased in the first ten months of 2024 by 7% compared to the same period last year, according to NBR data.” stated FIC President, Daniel Anghel (photo).

FIC recommends that the following principles the basis of the fiscal reform so that the twin deficits are reduced, and the Romanian economy continues to grow.

→ First, the authorities must support the country’s competitiveness through a flat taxation mechanism that ensures the predictability and stability necessary for private investment. Returning to a flat tax rate, a system that is simple to implement for both taxpayers and authorities, is essential for economic growth, avoiding distortions, and reducing tax evasion.

→ Second, the fiscal reform must ensure fiscal equity by eliminating exemptions, eliminating the minimum turnover tax, and capping the CAS and CASS.

→ At the same time, the fiscal reform must introduce equal burden sharing between the public and private sectors. Thus, it is important that the budget adjustment plan ensures equal contributions between reducing public spending and increasing revenues to the state budget.

→ Last but not least, the tax reform must be based on real digitalization and de-bureaucratization by introducing a set of KPIs to increase collection and monitor the implementation of the measures and reforms assumed in the PNRR.