FIC: New fiscal measures package puts investments under question mark

The Foreign Investors Council (FIC) warns on the recent proposals for tax changes, which not only substantially change the tax legislation and introduce a series of new taxes or increases, but also cancel the fundamental principle of the Code that granted a 6-month period needed for businesses to adjust to the new rules. For many of the new fiscal measures it is impossible to estimate the impact accurately; given the precarious situation of the budget and the economy, it is important that the measures are selected only according to the ability to estimate their impact.

In the absence of major changes in managing the public finances, the reduction of expenses with the administration of public services, the improvement of collection, the assurance of fiscal equity and the reduction of grey zones, the sustainability of the state budget remains fragile. At the same time, the disproportionate taxation of large taxpayers is threatening the ability of the economy to recover, with the risk that some companies will no longer be able to continue their activity in our country because they will lose their profitability or migrate some activities to other EU countries. Romania’s competitiveness in relation to other states could be endangered by such turnover taxation, this practice being almost non-existent in developed countries. Also, turnover taxation can produce competitive distortions even in the domestic market, favouring firms already present in a market compared to newly created firms and creating unequal conditions of competition among competing producers of similar goods.

Additionally, the acceleration of the legislative process that aims to produce substantial changes to the Fiscal Code jeopardizes the confidence of investors in Romania. It is vital that the package of legislative acts is discussed and analysed together with the business environment in order to have a complete picture of the medium and long-term effects on the real economy, and implicitly, on society.

Private investments represent one of the engines of economic growth, but also one of the main sources of financing the state budget. FIC periodically analyses the perception of large investors on the economy in Romania, compared to other locations where the companies they represent are present, with the help of the tool called “Business Sentiment Index” (BSI). Over the 10 years that FIC has conducted this CEO survey, the stability and predictability of the fiscal framework have remained vital criteria for private investment. The last months of uncertainty are also reflected in the latest data transmitted by the National Bank of Romania (BNR) regarding FDI, which shows that foreign direct investment in Romania decreased by 14% in the first half of 2023, compared to the same period of the year 2022.

Romania is in an important process of joining the Organization for Economic Co-operation and Development (OECD), an organisation that has as one of the objectives to promote inclusive and sustainable growth worldwide through international co-operation and policy reforms in support of sustainable investment. The recently published measures will hinder and delay Romania’s process of alignment with the standards imposed by the OECD for sustainable economic growth and investment support.

FIC reiterates the need for a predictable legislative framework and consultation with the business environment to reach the best solutions that ensure the sustainability of the state budget and the economy, avoiding high inflation as a result of the increase in consumer prices and, at the same time, the organisation’s openness for dialogue with state authorities to make available the analysis and knowledge of experts from the private sector. We remain the Government’s partners to identify those sustainable measures for fiscal reform, and also to ensure Romania’s economic development.