Tax changes proposed by officials for micro-enterprises will affect small businesses in particular, and the lack of predictability of the Tax Code could push investors to other markets, warn representatives of NextUp Solutions, one of the largest companies of software solutions for business, which implements tax changes, with over 5,500 companies in the client portfolio.
“Tax changes are once again imposed on the private sector, in order to increase revenues for the state budget. If the announced changes to PFAs are validated, they will become history by March 2024. Freelancers will switch to microSRLs or become employees. Micro-enterprise remains an attractive option, although the healthcare payment obligation (CASS) can be demotivating if you don’t have enough income. Another option in the real world of the private sector will always be underground work, but it seems that officials in the Ministry of Finance deny this reality and do not take into account that the announced tax measures can lead to an increase in income from the underground economy”, stated Roxana Epure, Managing Partner NextUp Solutions.
Entrepreneurs have fewer and fewer solutions, and in the long term, the answer to the volatile economic context remains the automation of processes and digitization. They manage to reduce the negative effects of the announced tax changes, which will have an impact as strong as it is sudden for most industries. Instead, companies that have outdated operational flows and work processes will be the most affected.
Among the main effects of the proposed tax changes are:
• The proposal to deduct the health contribution from the value of meal vouchers and holiday vouchers in addition to tax as it currently is will put pressure on the employer. In the real economy, the entrepreneur is affected by these taxes, which can lead to cost-cutting measures with employees.
• Profit tax if you have a profitability rate higher than 30%. It is one of the most unpopular and difficult measures to implement, in conditions where checks of these economic indicators, the calculation of these rates, and many insufficiently clarified procedures are necessary. Currently, there are many small businesses that bring money to the budget. In addition, these measures will also affect small businesses, which do not make a profit, but which will have obligations to pay the minimum tax..
• The IT sector, which contributes over 7% to Romania’s GDP, will also be impacted by the change, among which – IT professionals with salaries over 10,000 lei will pay income tax. The technology will become much more expensive, given that these changes will lead to an increase in development costs and ultimately to an increase in prices for the consumer, including the one in Romania.
• The changes announced for PFAs will have perhaps the strongest effects, and they could disappear in the next year, being replaced by other forms of activity, such as the micro SLR (microenterprise), which remains an attractive option. At the end of 2022, there were over 430,000 active PFAs.
The dissatisfaction with the business environment does not come only from the values of taxes, but especially from the instability created by fiscal measures taken “out of the blue”, which affects the economic context even more.
The Economic Sentiment Indicator (ESI) fell this year below 102 points, and in July it was at 100.4 (compared to 101.3 in June), close to the reduced level in May, when it had fallen to 99.8 points. Although it remains at a level above the EU average, the indicator shows us that confidence in Romania’s economy is no longer at the high levels of the past.
According to the most recent data from the National Bank, foreign direct investments in the Romanian economy were in the first quarter 300 million euros lower compared to the first quarter of 2022, a trend that could be accentuated by global economic factors, in conjunction with these local measures.
“These are measures that go against the employer because the business owner gets nothing in return – no predictability, no stability, no information services, no clarity in application or no technological infrastructure that is able to support these many changes. The most difficult thing for entrepreneurs in Romania to manage is not the tax itself, but the fact that we have zero predictability, that we change the Fiscal Code in August with applicability in October. It is easy to understand that all this discourages new and large investors, who without exception decide with the numbers in front, analyzing alternative scenarios in the medium and long term”, Roxana Epure also stated.
The lack of predictability could push investors to other countries, and Romania’s status as the most attractive investment destination in the region could change.
Process automation – a solution in the way of waves of change
“Entrepreneurs must do everything possible to ensure that in their own organization things are going well, that work processes are as efficient as possible and that they have access to the most accurate indicators in real time. In times when external factors create instability, it is even more important to have internal stability. What we are trying to do is to take redundant work from organizations through automated IT systems, in order to further reduce the pressure created by the thick bureaucracy in the relationship with state institutions”, added Roxana Epure, Managing Partner NextUp Solutions.
The relevant indicators for a business obtained in real time could protect the entrepreneur from wrong decisions, with a few steps ahead, and for that, it is also necessary to use high-performance solutions, updated software, and automation.
In the last 12 months, NextUp’s most accessed services were those related to the 406/ SAF-T statement. In addition, more than 70% of companies requested more information on reporting methods, and indicators of business success. Most often, the problems that were solved came from the use of outdated software or situations where part of the activity was kept in Excel, that is, the numbers and data analysis were left aside.
Although most companies accessing NextUp services do not initially request business process automation, one in two companies end up using these services the most later.
