There has been a spectacular reversal of the way in which gains derived from interest rates and from the sale of shares will be taxed after May 1, 2005: the newly increased 10% tax will now only be levied on gains made from interest payments for deposits made after May 1 and from the sale of shares purchased after May 1.
In other words, holders of bank deposits made prior to May 1 will see the bank deduct only 1% in tax for the entire duration of the deposit until maturity, even if this exceeds the above date. The same principle will apply to shares: gains made from shares acquired before May 1 will be taxed at 1%, regardless of the date when the shares in question are sold. The draft ordinance on the Fiscal Code was amended by the Senate''s Budget-Finance Committee, with the Finance Ministry dropping the so-called pro-rata temporis method that would have seen different levels of tax being levied for gains made before and after May 1, 2005.
"We have come to the conclusion that it is in the best interest of the market to have the 10% tax levied only on those deposits made after May 1 and on gains from the sale of shares purchased after that date, particularly because with stock markets problems could have arisen owing to it being difficult to go back and find the exact dates when various shares were purchased," Finance Minister Ionut Popescu told Ziarul Financiar.
He said he had accepted this amendment by senators of the Budget-Finance Committee in order to avoid possible complications caused by the difficulties of implementing two tax brackets if the maturity of a specific deposit was later than May 1 or a share bought before this date was sold after the 10% tax came into effect.
"We are not clinging on to the pro-rata system. If the capital market and banks work better this way, then we agree to having the emergency ordinance amended so that any shade of retroactivity is eliminated," Popescu said.
The Finance Ministry is hoping that Parliament will be able to close the debate and enact the ordinance with the modification included as soon as possible - that is before May 1, when the 10% tax on income derived from interest rates and gains from the sale of shares is due to come into force.
The decision that comes just over two weeks ahead of May 1 could induce a wave of share buying on the Bucharest Stock Exchange, with investors having every reason to take advantage of the low prices compared with the highs reached about a month ago and especially the maintaining of the 1% tax for the gains they will make for shares acquired before May 1.
As long as there is no final law, both the Finance Minister and the Senate''s Budget-Finance Committee are at risk of being accused of manipulating the market. Yesterday''s announcement only serves to continue the row over how to shift from the 1% to 10% tax.
The Senate Budget-Finance Committee chairman Varujan Vosganian said yesterday that another proposal had been made during the talks on the emergency ordinance, which concerned the dependent activities of certain employees for which payment of social security contributions should be mandatory.
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