The introduction by the Romanian Government of the tax on special constructions in its current form will have a powerful negative impact on the local business environment, as companies will have to pay more than the tax authorities initially estimated, representatives of the Foreign Investors Council (FIC) say.

The Romanian Government introduced a property tax on special construction of local companies, also known as "the pole tax" which is 1.5 percent of the value of the construction. The methodology for calculating this tax was adopted by the Government on Tuesday, May 20, and the decision should be published in the Official Gazette in the following days.

Initially, the Government said it expected to get some EUR 110 million from this tax, but FIC estimates that the state will get EUR 250 million from just 38 large companies in Romania.

Companies which hold hydroelectric power plants, electrical power stations, nuclear and thermal power plants, dams, runways, platforms, oil and gas drills, loading docks, mud-setting ponds, railway infrastructure, roads and other kind of infrastructure, will all have to pay the tax. The tax should be collected by May 26 this year.

Representatives of large companies say they weren’t consulted by the Government on this tax the implementation of which still raises many issues.

“The introduction of the tax on special constructions, as mentioned in the Governmental Ordinance, will create major economic distortions, all the more so given that only few days remain ahead of the tax’s reporting and payment deadline and there are still numerous unclear issues regarding its implementation. The fact that the implementation method itself is likely to cause major drawbacks in the economy and leave room for abusive interpretation by the tax authorities is another problem. Imagine a company with old fully depreciated installations which are not written off or used by the company, yet the entity must pay 1.5% of their gross value. I personally believe this situation makes no economic sense and yet it is a fact,” FIC president Mihai Bogza said.

FIC was one of the main critics of the Government’s decision to introduce this new tax, arguing that it will have a significant negative impact on the companies from the state and private sectors which own special constructions and it would cause distortions in the Romanian business environment, in terms of Romania’s attractiveness to investment and economic competitiveness.

The business environment performed its own impact analysis, whose results have been forwarded to the tax authorities to warn about the major repercussions the implementation of this tax would have.

“A number of 38 companies operating in industries such as telecom, construction materials, energy, transport and logistics, production of alcoholic beverages and pharmaceuticals have contributed significant input to the impact analysis. The result of the analysis indicated an aggregate construction tax of RON 1.1 billion (some EUR 250 million), which makes me think seriously about a much more drastic potential impact across the entire economy, which is very likely to exceed the tax authorities’ estimates,” Daniel Anghel, FIC board member and PwC Romania tax partner said.

At the same time, FIC says there is no distinction included as to the taxable base between the assets in operation, those which are temporarily inactive and idle assets. “It should be noted that assets whose discarding is approved are no longer operational, they can no longer generate economic benefits, yet the tax will be due and paid by taxpayers,” Anghel concluded.

Andrei Chirileasa, andrei@romania-insider.com