EXAMINING THE RECENT CHANGES TO TAX AND SOCIAL SECURITY LEGISLATION IN ROMANIA

Ileana Tache

Abstract


As of 1 January 2018 the Romanian government decided to shift nearly all employer social security contributions to employers. In order to offset the increase, the personal income tax was reduced from 16% to 10%, this tax including earnings from wages, independent activities, rents, investments, pensions, agricultural activities, awards and other income. For intellectual property income, the tax rate on advance payments is set by applying the 7% tax rate to gross income (previously it was 10%). The tax rate on income as final tax is 10%.

According to the Government Emergency Ordinance no. 79/2017[1], the total employer/employee social security contribution rate will decrease from 39.25% to 37.25%; the new employee social security contribution rate will be 35%, including a general 25% rate and a health insurance contribution of 10%.

The employer social security contributions will largely be eliminated. Employers will be subject only to a 2.25% labor insurance contribution. Employers may also be subject to additional pension contributions of 4% or 8% for employers subject to specific work conditions.

The so-called Romanian fiscal revolution also includes the increase of the minimum gross wage from 1,450 lei (about 310 euro) per month to 1,900 lei (about 407 euro) per month. In these conditions, the net minimum wage will increase from 1,065 lei to 1,162 lei. These changes entering into force from 1 January 2018 represent an increase of 31.03% as compared to the previous year 2017.

Before the implementation of the new fiscal measures, Romania had the seventh highest cost of the social insurance contributions among the countries of the European Economic Area (The Romanian Journal, July 17, 2017). Even considering the reduction of the cumulated rate of contributions from 39.25% to 37.25%, Romania remains in the group of countries with high social contributions.

This paper indents a critical examination of the recent modifications to tax and social security legislation in Romania, trying also to derive some future implications for the living standards and economic development of the country.


[1] OUG no. 79/2017 for amending Law no. 227/2015 regarding the Fiscal Code was published in the Official Gazette no. 885/10.11.2017.


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References


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