EXCLUSIVE Government Analyzing Mega-Package of Tax Hikes: 1% Tax on Residential Buildings Over €500,000, Dividend Tax Rises, Minimum Wage Boosts, and 10% Tax Surge on Gambling and Tobacco

The PSD-PNL coalition is currently negotiating a mega-package of fiscal measures, tax increases, which would be applied either from 1 August or from 1 September, in order to cover the budget hole of several tens of billions of lei and for Romania to meet the deficit negotiated with the European Commission, sources at the top of the two governing parties told G4Media.ro. The head of the PNRR, Celine Gauer, is currently in Bucharest to discuss the milestones and reforms Romania has undertaken.

Some tax increases are entirely new, such as the introduction of a 1% tax on residential buildings worth more than €500,000, others are older ideas such as higher taxes on gambling and tobacco.

The list of measures obtained by G4Media.ro does not represent a final agreement between the PSD and PNL, but a working scenario currently under consideration by the government. It is not clear whether all of these tax increases would be implemented from this year or only part of them.

According to G4Media sources, the PSD and PNL are having a hard time agreeing on the proposals because each party wants to protect its own electorate. „If they are adopted as a package, it will be a blow to the middle class and business,” liberal sources told G4Media.ro.

Below are the most important proposals under discussion on the coalition table:

• The introduction of a 1% tax on residential buildings that cumulatively exceed 500 thousand euros. An owner who owns more than one building or piece of land whose value exceeds this threshold would have to pay a minimum of €5,000 annually to the state.
• Tax relief for micro-enterprises which currently pay 1% on turnover if this turnover does not exceed €500 000. A tax adjustment is proposed for micro-enterprises with a profitability level above 30%. The tax in this case increases to 2% (according to government sources, only 1% tax is currently paid on around €15 billion of reported micro profits).
• Tax on dividends increased from 8% to 10% (percentage under discussion).
  1% tax for companies with turnover over €100 million (not supported in government)
• Increase minimum wages from 3,000 lei to 3,300 lei in the first stage and to 3,750 lei in the second stage, respectively in construction from 4,000 to 4,500 lei
• Over-taxation of incomes exceeding the President’s salary.
• Single VAT of 19%, possibly increased to 21 or 22%. There are reduced VAT rates for certain goods and services, such as 9% on basic foodstuffs. This would mean canceling the differentiated VAT rates on Horeca, bread, meat, milk, books, cultural activities, etc. Prime Minister Ciolacu recently spoke out against increasing VAT.
• According to G4Media.ro, following discussions with the European Commission, it was decided to maintain the two VAT rates (19% and 9%, including HORECA).
• Transfer amounts for companies that take their profits out of the country will be increased.
• 200 thousand unfilled posts in the administration will be abolished.
• Introduction of health insurance contribution (CASS) on salaries in Agriculture – Cultivation/Processing/Production and in Construction
  10% tax increase on gambling licenses, slot machines, cold tobacco – electronic cigarettes, luxury drinks, cognac, rum, whiskey, champagne, luxury food – fois gras, black roe, etc.
• Increase from 1% to 10% in the tax on stock market gains.

Background

The government needs to raise money in the budget to meet the budget deficit negotiated with the European Commission, which must not exceed 4.4% of the Gross Domestic Product (GDP). For the first five months, the deficit reported by the Ministry of Finance was 2.32% of GDP.

If it does not meet the deficit, Romania risks being cut off from EU funds.

Officially, the budget „hole” reached 9 billion lei in the first five months of the year. This is the sum between the ANAF’s collection program and actual collections. But there have also been rumors of a 20 billion lei „hole”, caused not only by lower-than-expected revenue but also by higher-than-planned spending.

But the hole could be even bigger, several tens of billions, because the companies’ profits were also overestimated by the finance department, which did not take into account the rise in energy prices. These increases have significantly reduced company profits.

It should be noted that the head of the NRRP, Celine Gauer, is currently visiting Romania to discuss the milestones and reforms undertaken by Romania through the National Recovery and Resilience Plan. One of the key milestones to be met and included in the 3rd payment request, which will probably be submitted in September, is the entry into force of the amendments to the Tax Code (Law No 227/2015) to reduce and/or eliminate tax incentives.

Prime Minister Marcel Ciolacu said on Tuesday that discussions with Celine Gauer focused on tax reform and the submission of payment claim number 3, adding that „the Government is drawing up a plan of measures to strengthen the sustainability of public finances”.