Romania’s President Klaus Iohannis has sent back to the Parliament the law on the flat tax for companies active in the tourism sector, namely hotels, restaurants, and bars.

The law fails to realize its intended purpose, which is to increase the state’s tax revenues and promote business ethics, the President argued.

The Senate adopted the draft law at the end of February this year. The law provided that the companies active in tourism should pay a specific tax starting January 1, next year.

The tax doesn’t take into consideration the companies’ revenues or profits. It would be a fixed annual tax paid by hotels, bars, and restaurants with a turnover of up to EUR 5 million and less than 250 employees.

According to the bill, the fixed tax would be calculated for each company based on certain formulas and taking into consideration factors such as the size of the unit, the area where it operates, as well as the number of accommodation places it provides.

The Presidency argued that such a law would lead to higher taxes for some companies in the hospitality sector and lower taxes for others, for the same activity. Thus, the new tax framework may provide a competitive advantage for some companies and may force others out of business.

The new tax would basically help companies with high revenues and profits pay lower taxes than they currently do while unprofitable companies with lower revenues would pay higher taxes than they do at the moment.

However, the unprofitable companies in the hospitality and restaurant business have always been suspected of keeping some of their revenues off the books, which is why the authorities have tried to introduce this flat tax several times in the past, as the hotel and restaurant sector is one with high tax evasion risk.

How many hotels are there in Romania?

editor@romania-insider.com