A dispute over an allegedly mandatory increase in local taxes broke out as the emergency ordinance whereby the Romanian Government announced the aggregate level of the inflation rate for three years, namely 16.05 percent, was perceived as an express order for local taxes to go up.

Following inquiries from journalists as to why this increase is necessary, Prime Minister Victor Ponta specified that the Government is not actually getting involved in establishing the level of local taxes, but that it merely stands by its obligation to inform the local administration about the legal local tax adjustment margin.

“I’m not asking for any tax to be increased, I’m only doing what the law asks, namely informing the members of the General Council of the Municipality of Bucharest and the local councils about the limits [within which they can modify tax levels], the fact that they cannot apply a 100 percent or 50 percent increase”, stated Prime Minister Ponta.

Local tax calculation must also take into account the local councils’ own tax adjustment prerogatives. In fact, once aware of the 16.5 percent approved aggregate inflation rate, local authorities may decide to go as low as minus 4 percent or as high as plus 20 percent of the resulting adjusted tax.

Prime Minister Ponta expressed his dissatisfaction with the way in which this information was disseminated, which led to the apparently erroneous conclusion that the Government is actually meddling with setting local tax levels.

The misunderstanding appears to have also been fueled by the statement of Government Spokesperson Andrei Zaharescu, who was asked during a press conference whether all local authorities are bound to apply the 16.05 percent upward adjustment. “All of them!” said Zaharescu. “This applies to absolutely all local authorities. This ordinance was issued by the Ministry of Finance in cooperation with the Ministry of Administration and Internal Affairs”.

Zaharescu put the conflict between his statement and the Prime Minister’s prior specification that the communication of the aggregate inflation rate does not count as an express order to apply it down to the wording of the emergency ordinance.

This is not the first time the 16 percent inflation adjustment rate has stirred up emotions. Back in October, a a decision concerning adjustments according to inflation was criticized by Prime Minister Ponta due to approximately the same communication problems and it was ultimately removed from the Ministry of Finance web site under the claim that the fiscal impact study behind it was inaccurate.

Following this tax review, local budgets are expected to increase by EUR 117.27 million (RON 527.73 million).

Ioana Jelea, ioana.jelea@romania-insider.com