Stimulating economic activity will depend on the implementation of the tax changes

Written by: Vassilis Voulgaris - TPG The Practice Group

The plan the Government announced concerning fiscal changes is definitely a move in the right direction. Experience has shown that the way to increase state revenues through taxes is to increase the tax base.

The only way to increase the tax base is to reduce the tax rates thus encouraging individuals and businesses to declare “black” earnings. Applying the above logic, we believe that the reductions announced (corporate tax, income tax, VAT, social security tax) will lead to an increase of revenues despite the popular belief that reducing rates results in smaller revenues. Furthermore stimulation of the economic activity should be expected.

We have to mention, however, that the VAT reduction of 6 % over a period of four years (2015-2018) seems a little bit too generous.

The micro enterprise tax system is complicated enough and any change to it will make the headaches of accountants worse. The removal of the special construction tax is the correction of an error that should never have happened, while the effect of the eradication of the dividend tax remains to be seen.

There is another very important point to be considered.

My former American boss used to say that “a project’s success is 1% in the planning and 99% in the implementation”. Unfortunately, the Romanian government has a dismal record in the implementation of plans. A prime example would be the VAT changes of 2013 (concerning the payment of VAT upon the settlement of the invoice by the company’s client), which were conceptually fair and correct, but the implementation turned into a nightmare.

In conclusion: the plan is good, but the devil is in the (implementation) details.