Romanian Transporters Say Progressive Income Tax Will Encourage Black Labor Mkt

„I think a progressive income tax in Romania is not at all a good solution and will have bad effects, because high salaries will turn into official declared low salaries through various schemes Romanians are very good at,” said Gabriel Stanciu, general manager of Alstom Transport Romania. He added investors will no longer be willing to pump money into Romania, and gave as example Bulgaria and Macedonia, where the income tax is set at 10%. Stanciu stressed the Romanian Government should invest in infrastructure and lure large foreign investors.

Valer Blidar, owner of the Astra Vagoane Calatori company, also agreed with Stanciu and stressed a progressive income tax would only „encourage the black labor market” and drive investors away.

Amadeo Neculcea, commercial manager with the country’s largest private railway freight operator Grup Feroviar Roman (GFR), thinks a progressive income tax will seriously affect large companies with many employees.

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Finance Minister Sebastian Vladescu has recently told newspaper Ziarul Financiar in an interview that Romania should switch to a progressive income tax as of January 1, 2011, after six years of applying a flat tax of 16%. Vladescu added the current 16% flat rate can no longer sustain the budget, as the economic contraction will exceed 1.5% of the gross domestic product this year.

Vladescu also said the introduction of a global income taxation system will entail several tax brackets, with deductions for private pensions and health insurance, and stressed the value added tax must be reduced in 2011 in order to stimulate consumption.

Romania has pledged to cut public spending and lower its budget gap to 6.8% of the gross domestic product this year, from a deficit of 7.4% of GDP in 2009.

The Government decided to increase the value added tax to 24% from 19%, as of July 1, as an alternative solution to increase budget revenues, after the Constitutional Court ruled unconstitutional some provisions included in the country’s first austerity plan, which had been pushed through the Parliament.