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ABSL: The negative Impact of EO draft will lead to decrease of FDI and employment rate

ABSL Romania examined the emergency ordinance draft to amend the law no. 227/2015 regarding the Fiscal Code and concluded that the implementation of these measures will have a negative impact on Romania's international competitiveness, discouraging the foreign investments in the Business Sector- after a recorded 17% fall in the first 8 months of 2017, as presented in a National Bank report.

2017-11-09 21:12:04

Also, we consider that the process regarding the transparency in the decision making, but also consultations with the Business Environment and the insertion of a 6-month implementation period, in conformity with the predictability and stability principle stipulated in the Fiscal Code is, in this case, a better solution than adopting the emergency ordinance draft.

ABSL supports the Ministry of Public Finance intention to modernize the law frame and is putting its entire expertise regarding the Industry in the service of the local authorities in order to consult and support the State Institutions in finding the optimal solutions for all parties.

The Business Services Industry significantly contributes to Romania's economic growth, counting over 250 companies (120.000 employees) and representing approximatively 2% of Romania's GDP. The Business Services Industry predicts an annual increase of 15%-20% in the next years, based on political and legislation stability – due to a study developed by KPMG for ABSL.

ABSL company members consider that the predictability of the business environment is the key-factor of economic growth, and the sudden modification of the fiscal program without consulting the business environment and presenting elaborate impact studies raises concerns over the Romanian economy, with immediate effects over the industry development and employment rate.

So, regarding the emergency ordinance draft, ABSL concludes:
1. The shift of social contributions payment from employers to employees is inopportune, because:
- This modification of the legislation has no positive impact on budget revenues
- There is no guarantee that the net wage will be maintained at the current level, in order to adopt the new measures in the private sector. These changes can unbalance the labor market, between the state companies (in which the Government can control/maintain the net wages) and the private companies.

2. The reduction of the taxable base for certain category groups (PFA) is welcomed on the long term because this measure sustains entrepreneurship, which is essential for stimulating the economic growth on the long term. But a holistic impact analysis is necessary in order to measure the impact of the proposals. These proposals might be reinterpreted, creating alternatives for the work contracts, having a negative impact on the tax revenue.

3. Microenterprises taxes on incomes:
We believe keeping the optional character of taxes on incomes and profits is necessary, in the limits of clearly defined criteria, because:

- Approximately 80% of companies in Romania register a figure lower than 1 mil EUR, with most companies evolving at the limit of profitability. However, the activity of these companies plays an essential role in creating jobs and paying afferent taxes towards the state.
- As a result of new Government proposals, all companies that register a profit rate lower than 6% will pay a tax higher than the current one, generating the risk of increasing the number of insolvencies, with all its consequent effects: financial blockage, increasing the unemployment rate and decreasing execution of payments towards state budget.
- Eliminating the condition that 80% of incomes should come from areas outside consultancy activities, combined with the pressures exposed above, could stimulate the abuse of using these structures as a remuneration form for dependent activities.
- Certain activities with a long production cycle, such as constructions, projects from the oil industry or even software production, do not present an annual correlation between incomes and expenses, recording losses in the first year of activity in the case of big projects and profit only after their finalization and delivery.

By applying these provisions, these companies will not be able to use the loss of tax revenues from previous fiscal years, when the results of work are being fructified. Consequently, these companies will be forced to budget a higher profit margin, risking to become uncompetitive on the international market and ending up paying less taxes towards the state budget – see the paragraph referring to taxes applicable to employees in the IT industry. This is another factor that will negatively impact the competitiveness of Romanian companies that produce software on the international market, with negative effects in state tax revenues.

4. The new regulations will negatively affect the net revenues of employees in the IT industry, through applying the new 10% tax rate.
We mention that, in the last years, this industry met a fulminant growth due to the retention of highly qualified Romanian work force, precisely as a result of salutary state intervention, through exemption from taxes of this category of employees. In this way, a significant contribution of budgetary tax revenues cashing has been made.

The request of workforce in this domain is huge, and the mobility of workforce in the 21st century is extremely large. It is therefore clear that these resources – extremely valuable for the Romanian economy – will now be deeply disadvantaged, and their migration (together with afferent projects) to more attractive destinations will be significantly accelerated, having a potentially negative effect on state tax revenues.

ABSL considers that operating in high risk conditions and unpredictability will make it more difficult to attract new projects for the Romanian market and to promote Romania as an attractive and competitive destination for investments.

As exposed above, we propose immediate reconsideration of this measurements and the initiation of a debate with the Business Environment representatives, ABSL reassuring that it will assign resources regarding focus groups in order to debate this themes and will come up with practical proposals and alternatives in order to ensure the proper legal framework for our Industry and economy growth.
The Association of Business Service Leaders in Romania (ABSL) is a leading organization representing the business services sector, gathering high profile companies which conduct business in the area of Shared Services Center (SSC), Business Process Outsourcing (BPO), Information Technology Outsourcing (ITO), Research and Development (R&D).

ABSL Romania aims to lead the Business Service Sector's expansion and transformation into an integral part of Romania's economic growth through industry collaboration and by engaging authorities and interest groups in developing the key operational and development aspects.

Local companies, profile multinational companies, global and regional leaders are part of ABSL Romania : Accenture Services, APT Resources & Services, Allianz Worldwide Partners Romania, Arvato Services Romania, Be Think Solve Execute, DXC, Goodyear Dunlop Tires Operations Romania, Telus International, Capgemini, Central Europe Technologies, CRH Ciment Romania, Connections Consult, DB Schenker, Deloitte Audit, Ernst & Young, Eucom Business Language, Genpact Romania, Global Remote Services, HP Enterprise, HP Inc Romania, Luxoft Professional Romania, Mazars Consulting, Mood Media, Microsoft Romania, Microfocus, Office Depot Service Center, Optima Solutions Services, PwC Romania, Process Solutions, Procter & Gamble Marketing Romania, Renault Business Services, Samsung Romania, SCC Services Romania, SELIR, Societé Generale European Business Services, Stefanini România, TMF/UCMS Group Romania, UniCredit Business Integrated Solutions, Valoris Center, Vauban IT, Veeam Software, Vodafone Shared Services Romania, Webhelp, Wipro Technologies and WNS Global Services Romania.

The Strategic Partners of the association are: ACCA, Fine Law, KPMG, COS, JLL, SKANSKA, iFuture and HAYS.

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