PhD. Adrian Mihai Inceu[1] - PhD lrimie Popa[2]: Income tax and the flat tax in Rumania (JURA, 2006/1., 126-140. o.)

Is very well known that the income tax, especially on individuals,

is a very important part of fiscal policy, through the consequences that involves.

In our research we analyzed what consequences had the flat tax,

starting on January first 2005, when Romanian Fiscal Code was modified.

In this paper we analyze the consequences of flat tax on individual's income tax, the consequences on wages and salary taxation[1].

To explain the main influences of these new trends in Romanian Fiscal policy we work out the following elements:

In our figures we consider the following cases: - Monthly Gross Salary (MGS) between 2.500.000 ROL and 100.000.000 ROL. Because we had a lot of data our presentation was truncated on following intervals 2.5 million ROL -10 million ROL, 10 million ROL -30 million ROL and 30 million ROL-100 million ROL; - we take onto account the numbers of relatives - to calculate Personal Allowances and Supplemental.

We compared the taxation before 01.01.2005 with the taxation after this date. In our paper in Appendix 1 and 2 we present the differences between this to way of taxation, following this structure: - Figures at employed level: Employed Payments; Personal Allowance; Tax; Net Salary; - Percentage on Gross Salary: Employed Payments; Personal Allowance; Tax; Net Salary; - Percentage on Total Workforce Cost: Employed Payments; Employers Payments; Total payments; Tax; Net Salary

To perform a good comparison we maintain the same payment to Risk Fund 0,50% (to gross salary), even if starting with 01.01.2005 this was modified and now is paid differentiate on profile activity (CAEN Classification) and the level 0.50% is the minimum payment.. Our conclusions can be altered by payment on this fund much bigger, because the maximum level cans rich up to 3,033%

In the following table we present the changes involved by the new fiscal system on income taxation.

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1. Gross salary; 2. Employed Payment; 3. Personal allowance; 4. Tax; 5. Net salary

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A. Percentage on Gross Salary: B. Percentage on total workforce cost

1. Gross salary; 2. Employed payments 3. Tax; 4. Net salary; 5. Employed payments; 6. Employers Payments; 7. Total Payment; 8. Tax; 9. Net salary

- 139/140 -

Final ideas

1. The idea that no employed has loosed something on flat tax introduction is false. Those who have relatives more than 4 and a Gross Monthly Salary bigger than 8.000.000 ROL, have now a net salary lower than before.

2. The Employed Social Security Payment has increased for those who have Gross Salary Bigger than 23.046.000 ROL with amount between 0 and 489.630 ROL.

3. Because the State Budget has loosed significant amount of money, starting the flat tax on income, the state increased the indirect taxes. This kind of indirect taxes has big impact on those who have big family low incomes.

4. The rate of inflation, in last six month in Romania, was bigger that the percentage of witch salary increased - for the most of the people -4%-5%.

5. Starting with flat tax, the extra net salary, were big for those who have big gross salary and very small for those who have average salary. So, we can say that those who have now bigger salary this come for those who are unfortunate.

6. The main expected benefit expected from the income flat tax was to diminish the fiscal fraud on this field, at least. But when the employers have very low benefit form this new taxation, they will not stop to break the law. The employers spend now almost the same amount on labor, on salaries like before. So no incentive to eradicate the fiscal frauds. ■

NOTES

[1] (Romanian) Government Ordinance 138/2004, din 29/ 12/2004, changing the Law nr. 571/2003 On Fiscal Code, publishedMonitorul Oficial, I 1281 din 30/12/2004; Finance Ministry Order 19 din 07/01/2005 concerning personal allowances starting from January 2005, published Monitorul Oficial, I nr. 39 din 12/01/2005

[2] valid until 01.01.2005