Has the weaknesses chain in the taxation of agriculture been broken?

In recent years there have been several more or less successful attempts by the state to change the blatantly nonfunctional taxation system of agricultural incomes obtained by natural persons in Romania. Through the old system applied for direct sales (in which intermediaries were required to withhold and remit 2% +5.5% of the purchased production value), the State budget collected only a quarter of the projected amounts.

Starting 1 February 2013, the new Tax Code introduced a tax system for the marketed agricultural production based on income rules, on which 16% is applied. A simplified approach that targets both collection efficiency, but which will also produce structural effects for small and medium agriculture in Romania. Which would those be?

The current report – “The new fiscal measures and the association of small producers. Has the weaknesses chain in the taxation of agriculture been broken? ” provides some answers with respect to the direct and indirect effects of recent changes, especially to the development of associations, but at the same time raises a number of questions concerning their implementation in practice, all of which should be taken into account when drawing up the methodological procedures to be launched in mid-February.

– Will (may) the Agency for Agriculture Payments and Intervention become a fiscal body, as it seems that this tax will be paid, in fact, out of the subsidies from EU funds, which the state “can not touch” ?

– Will the 670,000 farmers which the government counts on as payers of this new tax actually be as much? (given that the current calculation method leaves room for creative subterfuge and probably will cause crop diversification)?

– Which will be the income over which the determination of net income in a real system will be binding?

– And most importantly, in view of this report: will they move forward in implementing the promised measures to combat tax evasion by lowering the VAT?

The study assumes that both the small producer’s individual welfare, as well as his/her propensity to enter association is dependent on creating a level playing field for all actors in the agricultural market.

The report presents the solutions implemented so far by the state in the fight against tax evasion (ie reverse taxation) and welcomes the VAT measures announced by the current government (especially the pilot project to reduce the value added tax to 9% in the cereal and bakery field ).

Strengthening associative forms is considered one of the development priorities of Romanian agriculture. This has been extensively described in previous studies by the Romanian Center for European Policies (CRPE): in terms of support measures in the current National Rural Development Programme (NRDP) – in”Why is not attractive combination? Support from European funds for agricultural association “, then by analyzing the sociological context and practical methods that can stimulate forms of cooperation in “Union makes power. Models and best practices for sustainable agricultural association “.

The report is available here.

This report has been published within the pilot-programme  ”Rural development through entrepreneurship and association”, an initiative of the Romanian – American Foundation, which, together with experienced organizations in rural economic development and community facilitation, aim to create functional and sustainable agricultural associations in four different regions of Romania.