Dispute over taxation of occupational revenues

The Romanian government introduced an emergency measure on 26 June 2010 to amend the Tax Code Act. The measure, with effect from July 2010, means freelances, such as journalists, must pay social insurance contributions at a rate of about 16.5%, with their income tax increasing from 10% to 16%. Copyright revenues will also be taxed. The measure, attacked by unions representing teachers, those working in research and development, arts and the media, is to be challenged in court.

New income taxation rules

The Romanian government introduced the emergency ordinance amending and supplementing the Tax Code on 26 June 2010.

This law was designed to broaden the taxation base and ease the country’s budget deficit, caused by the economic and financial crisis.

It was also aimed at removing some inconsistencies between Romanian legislation and the provisions of the Treaty of the European Union, regarding taxation for those Romanian companies with permanent headquarters in other EU Member States.

The new rules regulate copy and related rights, the calculation of annual income from freelancing, taxation formulae and new tax rates.

From 1 July 2010, all non-salaried revenues from professional activities are taxed at 16%. These revenues also have deductions (at a rate of about 16.5%) made for individual social security contributions to pension, health and unemployment funds. The basis for calculating this is the aggregate amount of five gross average national salaries. The taxation base will result from the gross revenues, minus 20% as deductible expenses.

Prior to these new regulations, the copyright tax was 10%, the deductible share was 40%, and copyright holders did not pay social security contributions.

The measure distinguishes between freelances who derive their earnings exclusively from independent activities, and individuals whose main source of income is a salary, which they supplement with freelancing.

A 16% tax has also been levied on meal tickets, nursery and holiday vouchers, and on severance pay to those made redundant under collective redundancy schemes, or to decommissioned military personnel.

Social partner reactions

The taxation of freelance activities, and particularly of copyright income, was initially proposed by the National Trade Union Confederation ‘Cartel Alfa’ (CNS Cartel Alfa).

Bogdan Hossu, President of Cartel Alfa, said in January 2010 that about 80,000 people in Romania are hired and paid according to the copyright system.

The European Union Information Website, EurActiv, quoted Mr Hossu as saying that taxing copyright earnings and introducing social contributions ‘is also a way of helping these people benefit from pension rights’.

At a meeting of the Social Dialogue Committee of the Ministry of Public Finance (MFP) on 30 July, representatives of the Confederation of Democratic Trade Unions in Romania (CSDR) challenged the new measure. CSDR has affiliations with trade union federations from media, education, research and development (R&D) and art professionals.

The union representatives pointed out that, for example, the new regulations may restrict journalists’ freedom of expression. They also said it was unfair to expect the entire burden of social security contributions to be met by workers, with no equal obligation for employers.

The unions accused the government of ‘misrepresentation of the bargaining process’ and an ‘abusive attitude’, when they found out that the minutes of the meeting, when published, made no reference to their objections.

The Romanian Federation of Journalists (MediaSind), with the support of CSDR and the International Federation of Journalists (IFJ), announced that they will sue the government over the regulations on copyright taxation.

Commentary

According to estimations in the media, the new regulations will affect the revenues of some 80,000–100,000 people paid under copyright law, with the effect of cutting their earnings by about 25%, as a result of the increased income tax rate and the new social security contributions.

Scientists, artists, teaching staff and academics should be subject to distinct taxation rules, specifically tailored for them.

Constantin Ciutacu, Institute of National Economy, Romanian Academy