Tax Amnesty Project: a momentary solution?

Tax Amnesty Project: a momentary solution?

Costin Manta, Senior Manager, Department of Tax and Legal Assistance EY Romania

The amnesty and tax debt restructuring project may trigger controversy, but it is important to observe the overall situation in Romania.

At the end of 2018 there were overdue tax debts of about 30 billion lei. Of these, only about 0.5 billion lei were extinguished in the first 4 months of 2019, indicating a difficulty in collecting these tax receivables by the state through established methods. A number of countries in the European Union have used similar amnesty programs in recent years (eg Belgium, Italy, Germany, Greece, Italy, Spain) and countries such as Australia, Canada and the United States to attract the budget tax receivables difficult to collect by other means. Romania has also appealed to amnesty programs in the past, some of them assuming the fulfillment of complex requirements.

It is understood that the governors are trying to solve the problem of the budget deficit.
Is this legislative project the solution found by governors not to raise taxes? As history has shown us, raising taxes would affect all categories of taxpayers, including good payers.

Through this project, taxpayers have the opportunity to pay their overdue tax obligations, obtaining the removal of their tax liability. Often, it is precisely these accessory tax obligations, which increase the debt as a snowball, that the taxpayer was unable to pay tax liabilities as a whole. From our experience, many of these additional tax obligations have often come to light following a tax audit, with the tax having an interpretation of tax treatment different from the taxpayer. In this case, the taxpayer did not escape the payment of tax liabilities, not aware of these interpretations generating additional tax liabilities. Thus, in the taxpayer's capacity were established main tax obligations and accessories that could not be paid, although the taxpayer had paid in time the tax obligations declared up to that moment.

In the absence of amnesty, many taxpayers with overdue tax obligations will not be able to pay them. Often, the tax office can not cover these obligations by forced execution, with the risk of insolvency having effects throughout the commercial chain. Thus, there will still be two categories of taxpayers: those who pay their tax obligations and those who do not.

Under the conditions imposed by the amnesty project, those wishing to benefit from this facility will have to pay their principal tax obligations, not having a major advantage over taxpayers who have paid their tax obligations anyway. In addition, the tax office should provide facilities to good paying taxpayers just to reward their fair behavior. An example may be to grant discounts for the payment of time obligations.

Also, disciplined taxpayers can be rewarded through a low risk that can reduce the frequency or magnitude of tax inspections, giving priority to VAT reimbursement, obtaining VAT deferrals at customs, etc.

This does not mean that amnesty is a solution we can call every time. Tax amnesty should be exceptional. Reposing tax amnesty risks to be counterproductive, leading to the conclusion that non-payment of timely tax obligations can be a financing strategy. In addition, the exceptional character of fiscal amnesty is also reinforced by the questions that may arise regarding the impact on competition. The state should use all existing legal leverages to prevent the need for amnesty in the future.