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Romania's Emergency Ordinance 114/2018 explained

posted onFebruary 4, 2019

The Coalition for Romania’s Development (CDR), a private, non-political initiative, gathering the most representative organisations for the business environment in Romania, wrote an open letter to the Prime Minister Viorica Dancila on Wednesday (Jan. 30) asking her to cancel the Emergency Ordinance (OUG) 114/2018.

The Romanian Government approved in December 2018 the Emergency Ordinance 114 which introduced a tax on bank assets of 0.3 percent from January 1st, 2019, and capped the retail and corporate gas price at RON 68/Mwh. The Government also imposed turnover taxes of 2 percent for energy firms and of 3 percent for telecom firms. In addition, the Emergency Ordinance enables Romanians to withdraw from a mandatory private pension scheme.

The Ordinance, which was presented without impact assessments and without notifying unions and business associations, caused losses across Central European markets while the Bucharest blue chip index collapsed 11.21 percent to 7,475.22 points, wiping out the entire year's growth in one session. 

Tax on financial assets
In detail, the Ordinance establishes a tax on financial assets for banking institutions (credit institutions, Romanian legal persons or branches in Romania of credit institutions, foreign legal entities). The tax becomes due if the quarterly ROBOR average exceeds the 2 percent benchmark and its payment is considered deductible expenditure for tax purposes.

ROBOR represents an average interest rate of the interest to which the Romanian banks borrow each other in Romanian national currency (RON). This indicator is set by the National Bank of Romania based on the information provided by the top ten most active banks on the market. 

Natural gas prices
The Ordinance sets the retail and corporate gas price at RON 68/Mwh during the period 1 April 2019 – 28 February 2022. It also reintroduces sales obligations for gas producers, provides for Romanian Energy Regulatory Authority (ANRE)  to determine the proportion of imports / domestic production for the non-resident segment and introduces a 2 per cent contribution to the regulator.  

Tax on telecom firms
In the telecommunications sector, the government has set the monitoring fee pertaining to suppliers of public electronic communications networks and suppliers of electronic communications services at 3 percent of the previous year’s turnover.

Private Pension Scheme
Funds can invest in public-private partnerships; administration fees  charged by private fund managers have been reduced from a maximum of 2.5% to no more than 1%, of which 0.5 percentage points will be transferred to the National House of Public Pensions. The second commission of 0.05% of the assets changes according to the fund’s performance; a person may withdraw from the private pension fund scheme at own request, without giving a reason but not earlier than 5 years. The withdrawal fee is 2% of the assets. 

More than one month after the adoption of OUG 114/2018, the Ordinance is met with criticism.
The main opposition party as well as Romanian and foreign businesses call for the urgent abrogation of the legislative act claiming it discourages investments, increases prices for consumers and pushes companies out of the country. Meanwhile, local media report that the European Central Bank (ECB) is analyzing the OUG 114/2018 concerning the tax on financial assets. The Frankfurt-based institution is to publish a notification on the tax. 

The CDR comprises 45 organisations or associated members such as the American Chamber of Commerce in Romania (AmCham), the French Chamber of Commerce in Romania (CCIFER), the Romanian Businessmen Association (AOAR), the Romanian-German Chamber of Commerce and Industry (AHK), Romanian Business Leaders, the Foreign Investors Council (FIC) and Concordia Employers Confederation.

A copy of the open letter is available on CDR’s webpage (in Romanian): 

Romanian finance minister
Eugen Teodorovici, Romania’s finance minister Photo:

UPDATE 05/03/2019

Eugen Teodorovici, Romania’s finance minister has reportedly sent a letter to the US-based rating agency Standard & Poor’s (S&P) ensuring that the Government plans to ease the tax on bank assets – the so-called “greed tax”, reported on Tuesday  publishing the leaked letter. 

Ziarul Financiar also wrote that Romania's finance ministry is working to change the tax on banks' assets, disconnecting it from the level of money market interest rates and exempting certain types of assets from the tax base. Quoted by the local daily, Teodorovici said that discussions with local banks are still underway.

The move comes as S&P prepares to cut the country’s perspective from ‘stable’ to ‘negative’. Romania has the lowest “investment grade” rating at the three major global rating agencies – Fitch, Moody’s and S&P. 

Meanwhile, two European Commission officials, namely EC vice-president Valdis Dombrovskis and European Commissioner responsible for Economic and Financial Affairs, Taxation and Customs Pierre Moscovici, expressed concerns on the extra tax on financial assets (in OUG 114), the three laws on the banking sector (passed by the Parliament in December 2018) and the second pillar of the pension system, local reported.

The Emergency Ordinance 114/2018 has been adopted by the Romanian Senate on March 4.

Viorica Dancila Romanian PM
Viorica Dancila Romanian PM Photo:

Romania's PM  Viorica Dancila at the Palace of Parliament on Monday said that Emergency Ordinance (OUG) 114/2018 contains a set of measures to stimulate the development of the economy, by increasing the level of investments and by supporting projects with direct benefits for the citizens.

"Do you find it normal for Romanians to pay interest rates twice as high as other EU citizens? (...) By Ordinance 114, we have sought that these billions of euro should reach the state budget for the construction of schools, hospitals and motorways. (...) We have taken these measures following a rigorous analysis and comparing the situation in Romania with that of the other European states and with the European average. We have this political and governmental responsibility to ensure that the citizens are the main beneficiaries of economic growth," Dancila stated in the plenary of the Chamber Deputies. 

She also said that OUG 114/2018 will not be repealed, but will be amended by the government.

UPDATE 07/03/2019

Romania's biggest opposition party, the National Liberal Party (PNL), urges the Government to repeal Emergency Ordinance 114/2018. 

"The Government of Romania risks severe sanctions from the part of the European Commission that all Romanians will pay if they do not renounce the measures in Emergency Ordinance 114 for the energy sector. The European Commission urges the Romanian Government to abandon the capping of gas prices stipulated in the Emergency Ordinance 114 because it is against the principles of the free market in the European Union and against Romania's interests, " PNL said on Thursday (March 7), in a press release sent to local news agency MEDIAFAX.

UPDATE 27/03/2019

The Romanian government will lower the tax on banks' financial assets and disconnect it from money market rates, according to a draft published late Tuesday that amends the tax decree introduced in December 2018. 

UPDATE 30/11/2019

Romania's new government will try to make corrections to the Emergency Ordinance 114/2018 Prime Minister Ludovic Orban stated during the "Budget and Taxation 2020: From public policy to Business" conference held at Bucharest University of Economic Studies on Wednesday (Nov. 27). 

Orban, also called  the Ordinance 114/2018  “a criminal normative act” and said that respective corrections "are in progress". The head of government added that the goal is to amend the Ordinance 114/2018 by the end of the year. 

The Prime Minister on Friday (Nov. 29), during a meeting with the representatives of the Coalition for the Development of Romania (CDR), confirmed that the government is planning to amend the OUG.
“I even discussed with my colleagues to prepare an amendment bill for Emergency Ordinance 114 to repeal most of the articles – in the field of energy, in the field of pension funds, in the financial-banking field, overcharging in communications, the ghostly Investment and Development Fund and a lot of other provisions that have negatively affected the business environment” he stated.

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