Romania’s current profit taxation system is highly competitive, yet a simpler, more stable and transparent fiscal legislation is needed, said Patrick Leonard, tax partner with KPMG Romania. “Romania has a highly competitive profit taxation regime and many companies were attracted here by the low rate of 16 pct.
What the authorities need to do now, building on this accomplishment, is to ensure a simpler, more stable and transparent fiscal legislation. Such measures will encourage investors because they will ease the administrative burden implied by complying with the regulations and help them plan their activities. On the other hand, increased investments generated by such measures will funnel more revenues to the state budget,” said Leonard.
According to the cited official, fiscal administration and the difficulties caused by the frequent changes in legislation count to the hidden costs for taxpayers.
“In Romania, many companies are forced to spend long time and resources to enforce tax provisions; these resources are taken from commercial-productive activities, rising costs. The fiscal legislation also undergoes frequent changes, many a time without previous notice, thus hindering financial planning,” added Patrick Leonard.
“In Romania, many companies are forced to spend long time and resources to enforce tax provisions; these resources are taken from commercial-productive activities, rising costs. The fiscal legislation also undergoes frequent changes, many a time without previous notice, thus hindering financial planning,” added Patrick Leonard.
KPMG International conducts every year a survey on profit tax and indirect tax rates. This year the survey included 106 countries, 30 of which are members of the Organization for Economic Cooperation and Development (OECD). According to the document, it is for the first time in 14 years that the profit tax rate did not rise whereas indirect taxes are gain in importance at global level.
In this context, Patrick Leonard said that Romania has mainly followed the global trend of lessening direct taxes and rising indirect taxes. “The overall image here is more complicated due to the high levels further charged in direct taxes and of the administrative burden,” underscored the representative of the consultancy company.
According to the KPMG survey, profit tax rates kept sliding at global level in 2007 and governments worldwide are increasingly turning to goods and services taxes – known as indirect taxes – to compensate the deficit in public revenues.
According to the KPMG survey, profit tax rates kept sliding at global level in 2007 and governments worldwide are increasingly turning to goods and services taxes – known as indirect taxes – to compensate the deficit in public revenues.
The European Union (EU) further registers the lowest profit tax rates, with the average falling 1% since 2007 to 23.2 pct. The highest average rates are in the Asia – Pacific region where rates declined 0.8 pct to 28.4 pct. The average global profit tax remained at 25.9 pct, 1% below the figure in 2007. At global level, the average indirect tax rate is 15.7 pct, with slight fluctuations over the last 5 years, but at 19.49 pct, the average indirect tax rate in the EU (the goods and service tax – GST or the value added tax – VAT) was the world’s highest.
In the Asia – Pacific region, this rate stand lowest at 11.14 pct, but the average rate rose here too 0.5 pct since 2006.In Romania, the profit tax was settled at a flat rate of 16 pct in early 2005, one of the smallest in the EU, whereas indirect taxes are rather high. The standard VAT rate is 19 pct and although a reduced rate is also provided, the products that qualify for a reduced VAT are fewer than in most EU member states.
Despite such findings, KPMG experts said that particular direct taxes are still very high. According to KPMG Romania tax partner Valentin Tic-Chiliment, the tax on buildings is several times higher than in neighbouring countries and this could discourage investors despite the low profit tax. “It is true that some exceptions are in place for large-sized investors, but they are decided by local authorities and are quite arbitrary, so that the system is not particularly transparent,” said the cited source.
In his turn, KPMG Romania tax partner Niculae Done mentioned that there have been signs for years now that the governments of the world are turning their attention to indirect taxes, but this year the trend became clearer. “There are three clear clues to this. In the first place, indirect taxes generally remained unchanged, whereas the profit tax has been rising constantly.
In the second place, increasingly more governments introduce the indirect taxation system – it is already working in 135 countries and others will follow. And in the third place the applicability of these taxes is expanding constantly to cover ever more transactions and the tax authorities have been lately concerned to optimise indirect tax collection by using resources engaged in profit tax collection,” mentioned Done.
KPMG experts explain the trend to shift focus towards indirect taxes by the fact that in a world with growing corporate and profit tax mobility, taxing consumption represents an income source few governments can resist. “They flow in from the entire economy, not just from corporate profits and represent a constant income source rather than large amounts flowing in at large intervals that are cashed faster after becoming due than the profit tax,” explained Ramona Jurubita, Senior Manager with the Indirect Tax Department.
On the other hand, transfer prices are one of the most active and newest elements subject to tax regulations, a sector more and more countries plan regulating in order to settle the prices for which companies operating under the umbrella of a single international group perform crossborder operations.
In Romania, the legislation on transfer prices has been in effect since January 2004. KPMG International has been conducting the annual survey on profit and indirect tax rates since 1993. The survey covers 106 countries, including the 30 member countries of the OECD, the 27 EU countries, 20 countries in the Asia Pacific region and 20 countries in the Latin America region.
The survey this year presents a comparison between the profit tax rates on April 1, 2008 and the equivalent thereof in January every year, starting 1993. For the first time the survey also includes information on value added taxes or goods and services taxes in 90 countries, going back five years.
KPMG is the global network of professional firms providing audit, tax and business consultancy services. The company operates in 145 countries and employs 123,000 staff in member companies worldwide.
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