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Posts Tagged ‘Romania’

In the battle against higher taxes and wasteful spending, I’ve never thought that witches would be an ally, but Romanian politicians apparently voted down a proposed tax because they were afraid of being cursed. We curse politicians in America all the time, of course, but in a different way. And since that milder approach doesn’t seem to work very well, maybe it’s time to up the ante?

Lawmakers Alin Popoviciu and Cristi Dugulescu of the ruling Democratic Liberal Party drafted a law where witches and fortune tellers would have to produce receipts, and would also be held liable for wrong predictions, a measure which was part of the government’s drive to increase revenue. Romania’s Senate voted down the proposal Tuesday. Popoviciu claimed lawmakers were frightened of being cursed. It’s unclear if Popoviciu and Dugulescu will try to redraft the law.

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In the private sector, no business owner would be dumb enough to assume that higher prices automatically translate into proportionately higher revenues. If McDonald’s boosted hamburger prices by 30 percent, for instance, the experts at the company would fully expect that sales would decline. Depending on the magnitude of the drop, total revenue might still climb, but by far less than 30 percent. And it’s quite possible that the company would lose revenue. In the public sector, however, there is very little understanding of how the real world works. Here’s a Reuters story I saw on Tim Worstall’s blog, which reveals that Bulgaria and Romania both are losing revenue after increasing tobacco taxes.

Cash-strapped Bulgaria and Romania hoped taxing cigarettes would be an easy way to raise money but the hikes are driving smokers to a growing black market instead.

Criminal gangs and impoverished Roma communities near borders with countries where prices are lower — Serbia, Macedonia, Moldova and Ukraine — have taken to smuggling which has wiped out gains from higher excise duties.

Bulgaria increased taxes by nearly half this year and stepped up customs controls and police checks at shops and markets. Customs office data, however, shows tax revenues from cigarette sales so far in 2010 have fallen by nearly a third.

…Overall losses from smuggling will probably outweigh tax gains as Bulgaria struggle to fight the growing black market, which has risen to over 30 percent of all cigarette sales and could cost 500 million levs in lost revenues this year, said Bezlov at the Center for the Study of Democracy.

While the government expected higher income from taxes in 2010 it has already revised that to the same level as last year. “However, this (too) looks unlikely at present,” Bezlov added.

Romania, desperately trying to keep a 20 billion-euro International Monetary Fund-led bailout deal on track, has a similar problem after nearly doubling cigarette prices in 2009 then hiking value added tax.

Romania’s top three cigarette makers — units of British American Tobacco, Japan Tobacco International and Philip Morris — contributed roughly 2 billion euros to the budget in taxes in 2009, or just under 2 percent of GDP.

They estimate about a third of cigarettes in Romania are smuggled and say this could cost the state over 1 billion euros.

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Redistributionists hate the flat tax, and this sentiment is widely shared by other statists. These proponents of big government want the tax system to to punish success and generate loot that can be used to buy votes (though they don’t seem to understand that if they punish success too much, they won’t actually get any additional money to spend, but that’s a separate issue). This is why it’s been amusing to watch nations in Eastern Europe adopt flat tax systems and compete with each other to have the lowest tax rate. The people who actually lived under communism are the ones most anxious to jettison the notion that a tax system should be based on “from each according to ability, to each according to need.”

But this doesn’t mean the flat tax is a permanent feature of the fiscal landscape in Eastern Europe. The high-tax nations of Western Europe don’t like the flat tax. The bureaucrats at the OECD and European Commission don’t like the flat tax. The IMF and World Bank don’t like the flat tax. And, of course, there are always redistributionists in every nation who resent success and politicians who want more power. So it is remarkable that flat tax systems have been so durable. But I’ve seen several stories in recent weeks that the flat tax in Romania might be repealed and replaced with a class-warfare system. This would be bad news, and could be even worse news if it was the beginning of a trend. The good news, though, is that the Prime Minister just announced that there are no plans to change the system (notwithstanding the misguided views of the nation’s Financed Minister). Tax-news.com reports.

During a recent gathering of small- and medium-sized enterprises in Bucharest, Romania’s Prime Minister Emil Boc announced government plans to maintain the flat tax of 16% imposed on income and profits, while also confirming plans to abolish the minimum tax from the autumn. Emphasizing that maintaining the flat tax was a fundamental objective of the government, Prime Minister Boc confirmed that the existing system would not be replaced by a progressive system of taxation, as it would not serve to generate additional income for the state budget. The government therefore has no reason to abolish the flat tax, Boc reasoned, which is also a symbol of stability and coherence of economic activity. Romanian Finance Minister Sebastian Vladescu had urged the government to move from the flat tax system of income tax, representing a bygone era, to a system of progressive rates, vital to supporting the state.

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