Tax consultants and businesspeople reject the idea ofintroducing a progressive income taxation system to replace theflat tax, pointing the finger first of all at the effect of a risein the price of labour, since the upper brackets, at least, areexpected to exceed the current 16% level.
The idea of progressive taxation brings to mind the maximum 40%tax levied until 2004, but the brackets could be much lower in2011, as suggested by Finance Minister Sebastian Vlădescu.
Experts in this field say dropping the flat tax would be a stepback for Romania's fiscal policy and result in the loss ofcompetitiveness compared with other European states, which hasallowed attracting a lot of foreign investment over the last fiveyears.
Alex Milcev, tax partner with Ernst & Young advisory, brings upthe rise in management costs both for taxpayers and for the taxauthorities, explaining this will create a complicated and hard tomanage system with all the pension and private medical insurancedeductions included. "Everybody has grown accustomed to thesimplicity of the flat tax and the change would not be welcome. Themore complex the system, the less predictable the results."
Dan Şucu, owner of Mobexpert group, says he does not likeprogressive taxation "but if is good for public finances and comesin a set of other measures that could eventually lead to a VATdecrease, I could go along with it; if it's just a means to plugsome holes, it won't be all right."
The scenario of progressive taxation, discussed during the previousround of talks with the IMF, as well, stirred controversy amongpoliticians: Premier Emil Boc said Vlădescu had not been authorisedto bring up the idea of dropping the flat tax, while Vice PremierMarko Bela (Democratic Alliance of Hungarians in Romania) said hedid not dismiss the idea for 2011, which had been discussed by theruling coalition. As far as the opposition is concerned, PNL(National Liberal Party) accused the government of beingirresponsible for dropping the flat tax and PSD (Social DemocraticParty), a supporter of progressive taxation, could only suspectVlădescu of "starting a false topic".
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