Flat tax, what we gain from it?

As the global economic crisis was not enough for our economic situation, 2009 dealt a hard blow to all Romanian companies that are income tax payers, introducing a flat rate tax starting with 1^st of May.

Due to this new legal provisions, each legal person has to pay a mandatory minimum income tax. In more concrete and less formal terms, “you must pay, no matter what”. The reason why is very simple in the opinion of the people who proposed and voted this tax application law:

As the global economic crisis was not enough for our economic situation, 2009 dealt a hard blow to all Romanian companies that are income tax payers, introducing a flat rate tax starting with 1^st of May.

Due to this new legal provisions, each legal person has to pay a mandatory minimum income tax. In more concrete and less formal terms, “you must pay, no matter what”. The reason why is very simple in the opinion of the people who proposed and voted this tax application law:

• will reduce the number of “ non legal” companies, that develop suspicious activities and don’t have enough contribution to the state “piggy bank”
• will encourage the state economy that has dropped in the black hole of the economic crisis

In this way of saying them, the things seem really good and pink on paper in a country where the government is struggling to reduce tax evasion and increase the welfare state. But, our practice has shown that these things tend to shades of gray and black:

• in the first half of this year, 129,900 companies have ceased, in various forms: bankruptcy, temporary or permanent suspension, etc.. compared to last year where only 60,000 have decided to cease work
• some of these companies have ceased, choosing to supply certain activities “under the table”
• along with the 129,900 firms closed, the number of unemployed increased, the number of tax payers of VAT on buildings, salaries also as earnings from the state budget decreased.

If in the first two months after introducing the flat tax the state economy has been exulted by receiving the approximately 300 million lei, probably we will be soon and unwillingly, the viewers of a drama in several acts when we will make the calculation and see that the price paid for the gain of about 69 million euros was too expensive: 200 million euros; price paid largely by employees who were left without jobs and employers who were left without company and have not paid contributions to the budget state.

If we were still believing what they are still saying on the media, starting with next year the flat tax would be applied restrictively, only to those branches considered tax dodger.
Hopefully, the micro enterprise will be exempt from this tax, while not record profits but provide employment, pay wages and related taxes, reduce unemployment and solve some local needs, such as computers service shop, a tailor in a neighborhood, a grocery shop, etc..

Some micro enterprises owners have found a saving option to change the legal regime in legal authorized person. The reason is simple, the flat tax is replaced by the 16% pay income tax and contributions to the health and pension. In addition, the employer can make significant savings on wages, in case of employment in other companies through civil agreement.

I conclude by giving some answers to the question from the title

We won:

• an impressive number of unemployed people
• an impressive number of companies with operations suspended, closed, etc. no longer contributing to the state budget
• an impressive number of PFA’s (which does not equalize the taxes paid to the state budget by the other categories of legal persons)
• a hole of aproximativ131 million lei in the state budget
  encouragement to perform work in an illegal way

And if you would like to calculate all the things that this flat tax brought once it was approved we will see, with regret, that we have assisted to nothing but another bad decision taken by the Governmen from each both parties involved: the Romanian state and its people had only to lose.

Nothing new, nothing surprising!