Cancellation of 3-percent income tax on micro-enterprises might bankrupt half of them

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Inactive micro-enterprises or those established to carry out illicit business will be closed down as a result of discarding a pervious 3-percent tax on their income and replacing it with a flat 16-percent profit tax, Romania libera remarks on Monday.

The cancellation of the 3-percent income tax on micro-enterprises is a normal measure that will clean up the system, yet its implementation is untimely, according to specialists. ‘This is a normal measure, because very many micro-enterprises would be established as vehicles to dodge outstanding tax arrears.

The only problem with it is that it is untimely, as it is taken at a time of economic crisis in which companies are facing economic hardships,’ says Chairman of the National Union of Romanian Insolvency Practitioners Arin Octav Stanescu.
Previously, micro-enterprises would be extended a privileged tax regime that allowed them to pay either a 16-percent profit tax or a 3-percent income tax, but the 3-percent option was discarded in January 2010. Moreover, a 16-percent tax has been introduced on their dividends.

Data with the National Companies Registry Office show that there were nearly 280,000 companies registered as micro-enterprises, which are enterprises with less than nine employees and annual revenues of below 100,000 euros, in 2009. Stanescu argues that the measure was not intended to raise more money for the Budget, but rather to eliminate the companies that were especially created to dodge the law and avoid paying taxes, because the money to be collected by the Government would be small.

‘It is hard to believe that levelling out the tax on micro-enterprises will provide more money for the Government,’ says managing partner Mirela Serban of the RM Audit consulting, accounting and audit company.
She says that for 45-50 percent of the micro-enterprises the switch to the 16-percent tax on profit will very likely mean bankruptcy as they do not have the profit margin needed to cover the difference from the 3-percent income tax in a difficult economic year such as the current one.

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