Shock therapy to stimulate foreign investments

The government is trying to apply shock therapy by adopting a set of measures to stimulate investments. These measures include maintaining the 16 percent flat tax, adopting incentives for reinvested profit, and, as of this year's second half, capitalizing Exim Bank and CEC.

Moreover, economic growth could be boosted by founding guarantee and counter-guarantee funds for small and medium-sized enterprises (SME), and allocating €10.2 billion to ensure the development of infrastructure projects.
These decisions come after grim estimates regarding the value of foreign investments in 2009. According to Romania's President Traian Basescu, foreign investments will not exceed €3-4 bln this year, two times lower than in 2008.

"We have decided to maintain the flat tax introduced in 2005, when Romania took one of the bravest steps. We have not profited sufficiently from the flat tax. Unfortunately, we spent the benefits it provided, and reached a 5.2 percent budget deficit in 2008," said Prime Minister Emil Boc during an economic conference. Boc added that he is considering other measures for the development of key economic sectors, such as the auto industry.

The subjects discussed with the representatives of the Automotive Manufacturers and Importers Association (APIA) include maintaining the car tax at its current level to year-end, countering fiscal evasion on car imports, and expanding the Rabla car buy-back program for the renewal of the auto park to include leased cars, and commercial vehicles for companies. An additional measure, requested by APIA officials, is that car and car parts producers be exempted from paying 50 percent of the value added tax (VAT) in 2010, to increase liquidity in this sector. This request is especially significant as auto industry officials forecast that the difficult period which the auto segment is currently confronted with is long-term. Car and car parts producers want the state to pay 50 percent of VAT for 2009 and 2010 as of March 2011.

"A car cannot be made without car parts producers, and we request this postponement especially on their behalf. We prefer this solution, rather than financing hundreds of companies which cannot find lending solutions," said Constantin Stroe, Vice Chairman of Automobile Dacia, and President of the Association of Automotive Manufacturers (ACAROM).

Business Standard