Romania’s Government plans to adopt several changes to the Fiscal Code in today’s cabinet meeting. The most important three changes are the transfer of social contributions from employers to employees, cutting the income tax from 16% to 10%, and increasing the turnover threshold for companies that pay a turnover tax instead of the tax on profit.

The most debated measure in recent weeks has been the social contribution transfer. The Government wants all contributions to the state pension and unemployment fund as well as health contributions to be paid by the employees starting January 1, 2018. These contributions are currently split between employees and employers.

The social contributions (CAS and CASS) for normal work conditions currently amount to 39.25% of the gross wage, part of which is paid by the employer while the rest is paid by the employee but withheld and transferred to the state budget by the employer. Starting January 1, 2018, the Government plans to lower the social contributions to 35% of the gross wage and put the whole charge on the employees. However, the employers will still have to withhold and transfer the money to the state budget. The employers will also have to pay a 2.5% contribution for labor insurance.

At the same time, the Government plans to cut the individual income tax from 16% to 10%. The combined effect of these two changes will be a drop in the employees’ net wages if gross wages remain the same. The Government initially wanted to force employers increase the gross wages but later gave up this idea, so it’s up to the employers if they will increase the gross wages or not and in what amounts. However, some categories of employees will definitely have lower net salaries, according to unions, which is why the fiscal measures have been widely criticized.

The Government also wants to increase the threshold for micro-companies paying a tax on turnover instead of tax on profit from EUR 500,000 to EUR 1 million. This will likely affect many small and medium companies in Romania, which are on a loss or have low profit margins and will have to pay higher taxes.

Romanians prepare new protest as Govt. moves on with controversial fiscal changes

editor@romania-insider.com