Romanian companies made 11.6 billion euros in taxable profits in 2005, twice more than in 2004. The increase was largely due to the introduction of the flat tax, which pushed companies to bring a large portion of their revenues out into the open but also drove up the sales of consumer goods, cars and constructions supplies.
Consumption increased because individuals got more money left in their pockets.
Resident companies paid 1.80 billion euros in profit tax in 2005, compared with 1.6 billion euros in 2004, therefore only 200 million euros more. Net profits registered last year, however, increased from 4.7 billion euros to 9.5 billion euros.
The introduction of the flat tax thus helped companies gain twice more from the reduction of the profit tax alone last year.
The total net profit in the economy, 9.5 billion euros, is an all time high for the Romanian economy, thus indicating an outstanding year for the business environment since 1990. The amount accounts for 12% of the Gross Domestic Product (GDP).
As a comparison, total volume of exports in 2005 amounted to 22 billion euros, only twice higher, while Banca Comerciala Romana, the largest bank on the market, was appraised at 6 billion euros.
Out of the 9.5 billion euros in net profits registered by the companies in Romania, foreign investors - as indicated by the balance of payments'' direct investment revenue chapter, repatriated 2.4 billion euros.
Had the 25% tax been levied on the total taxable profit of 11.6 billion euros, companies would have had to pay 2.9 billion euros to the state, that is one billion euros more than they actually paid.
In other words, the state left one billion euros for the companies to spend at their discretion by slashing the profit tax.
This explains the investment effervescence, on the part of both Romanian and foreign companies. Gradually, investments in the economy went up from quarter to quarter from 5% in early 2005 to 21% in the fourth quarter of last year. Companies, however, did not gain only from the reduction of the profit tax payments, but also from the reduction of the contributions to the social security budget in absolute amount.
Therefore, even though the contribution quota remained the same in 2005 as in 2004, the fact that many employees actually negotiated their salary in net instead of gross figures, allowed the companies in question to see the payable social security contributions drop.
The explanation is that for the same, say, 100 unit salary, these companies paid social security contributions for a 119 unit salary (16% of 119 equals 19) as of January 1, 2005, instead of paying such contributions for a 135 unit salary (26% of 135 equals 35).
The 26% is the average taxation of the four brackets from before the introduction of the flat tax, which went from 18% to 40% (for salaries above 300 euros).
In other companies, the gain from the flat tax was divided between company and employees. sorin.pislaru@zf.ro
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