Romanian Social Democrats propose imposing a 0.5% tax on the turnover for profit-tax-paying corporations
The Social Democratic Party (PSD) of Romania is set to discuss a new tax measure this week, proposing a 0.5% turnover tax on companies that currently pay corporate profit tax. This move aims to expand the current system, which only imposes a 1% turnover tax on companies with over €50 million revenue that report losses or pay very low profit tax (less than 1% of turnover).
Key differences from the current tax system include a broader scope of turnover tax, a likely additional corporate income tax, and the intention to ensure fairness and prevent profit shifting. The new tax will apply to all profit-tax-paying companies, excluding microenterprises.
PSD leader Sorin Grindeanu announced the proposal during a press conference on July 21, stating that the objective is to ensure tax equity. He emphasized that if a company makes profit in Romania, it should pay taxes there regardless of how much profit is declared. The proposal also ties into wider efforts by PSD to combat profit shifting and increase tax burdens on large companies and wealthy individuals to balance fiscal pressures.
Under the current legislation, the new turnover tax will target businesses with annual revenues exceeding €50 million that report losses or pay profit tax amounting to less than 1% of turnover. However, the details regarding whether the new tax will replace or supplement the existing 16% profit tax have not been clarified by Grindeanu.
The details about the mechanisms or legislative instruments that will be used for tighter regulation and taxation of profit-shifting practices have not been disclosed. Grindeanu indicated that the PSD would push for tighter regulation and taxation of profit-shifting practices, without providing details about the mechanisms or legislative instruments.
In contrast, the existing system mostly relies on the standard 16% corporate tax on profits, with some sectors like casinos subject to a minimum tax of 5% on turnover. Turnover-based taxes are primarily limited to specific cases as described above.
In summary, the 0.5% turnover tax proposal represents an expansion and generalization of turnover-based taxation to ensure broader tax collection from profit-making companies beyond the current limited scope. The aim is to reduce tax avoidance and profit shifting in Romania. However, whether it would be levied in addition to or instead of the existing profit tax remains unspecified as of now.
The PSD's proposal for a 0.5% turnover tax on profit-tax-paying companies signals an expansion of turnover-based taxation in Romania's business sector, aiming to address tax equity and prevent profit shifting. This move aligns with broader political efforts by PSD to increase tax burdens on larger businesses and wealthy individuals to balance fiscal pressures, and could have implications for the broader economy and general-news landscape.
