A modification of the law made at the end of last year while the Ciolos Government was still in office could leave more than 30,000 people in the IT services centers in Romania without the income tax exemption, thus hitting the local IT industry even harder than the overnight drop of the social security and health insurance tax cap by the Grindeanu Government.
The IT industry became a driver of the economic growth in 2015 and 2016, when it had the second highest growth after retail and industry depending on the year.
The risk comes from the introduction of a new requirement for the tax exemption for programmers: the purpose of their activity has to be making a finished product or a component of a finished product due to be sold.
This requirement, published in the Official Gazette on January 9, is subject to interpretations and may create problems even for the employees in the IT companies working on updating or maintenance of applications, says Ramona Jurubita, partner and head of tax&legal with audit and tax consulting firm KPMG.
“It is not yet clear how the modifications to software applications such as correcting errors identified and reported by users can be considered an eligible activity for the tax exemption,” Jurubita said.
The issue comes at a time when the local IT industry, which doubled contribution to GDP to more than 6% and EUR3.6 billion compared with 2012, is still reeling from the drop of the social security and health insurance tax cap for employees earning high salaries.
“The impact (of the drop of the social security and health insurance tax) is significant. We expect an impact on the motivation and confidence in the stability of the working environment in Romania (…),” says Teodor Ceausu, head of the local subsidiary is US’ Ixia, which is currently employing more than 300 programmers in Bucharest.
“We demand the government to withdraw the action announced and consider other options.”
The decision hurts the ‘crown jewel’ of the Romanian industry and the best people it has, he added. “They are the ones mentoring beginners and among them are some of those that helped put the industry where it is now. This is how we repay them?”
(English version by Loredana Fratila-Cristescu)