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Because the market forces of supply and demand did not operate in the centrally planned command economy, prices were calculated and assigned to goods and services by a governmental body, whose decisions were shaped by political and ideological considerations as well as economics. Following the tenets of Marxism, prices for basic necessities had been maintained at artificially low levels throughout the post-war period until 1982, when 220 different food items were marked up 35 percent. Even after the increases, however, food was priced below the cost of production, and state subsidies were required to make up the difference. At the same time, prices for what the party categorized as luxury goods--blue jeans, stereo equipment, cars, and refrigerators were far higher than justified by production costs. Consequently, per capita ownership of consumer durables was the lowest in Eastern Europe except for Albania.
The inflexible system of centrally controlled prices created serious economic dislocation. Lacking the free-market mechanism of self-adjusting prices to regulate output, the economy misallocated resources, producing surpluses of low-demand items and chronic shortages of highly sought products, including basic necessities. This serious failing notwithstanding, the Ceausescu government in the late 1980s adamantly refused to modify the system and in fact was moving to strengthen the role of central planners in setting prices.
Wholesale and retail prices were assigned by the State Committee for Prices, with representation from the State Planning Committee, the Ministry of Finance, the Ministry of Foreign Trade and International Economic Cooperation, the Central Statistical Bureau, and the Central Council of the General Trade Union Confederation. The committee computed the price of an item based in part on normative industry-wide costs for the materials, labor, and capital used in its production. In addition, the price included a planned profit, which was a fixed percentage of the normative production cost. After a pricing revision, approved by the GNA in December 1988, the profit rate was set at between 3 and 8 percent of cost. An additional profit margin was factored into the price of commodities destined for export--6 percent for soft-currency and 10 percent for hard-currency exports.
Because prices were based on industry-standard costs, enterprises with lower than average costs earned above-plan profits, but those with high costs ran deficits and had to be supported by state subsidies. The New Economic and Financial Mechanism had called for making all enterprises self-financing, and those unable to break even were subject to dissolution. But as of early 1989, no instances of plants closing because of unprofitability had been reported. A pricing law enacted in December, 1988, would allow enterprises to retain all above-plan profit earned in 1990 but would require them to transfer half of such profits to the state budget during the subsequent four years. The enterprises channelled their share of profits into various bank accounts and funds that provided working capital and financed investments, housing construction, social and cultural amenities, and profit sharing. The last fund paid bonuses to employees if any money remained following compulsory payments to the state and the other funds. But if an enterprise failed to meet its production target--an increasingly common occurrence in the 1980s--the profit sharing fund was reduced accordingly.
In accordance with the Fiscal Code, the following are treated as taxable subjects:
Romanian authorized business, for the taxable revenue obtained from any source, both in Romania and abroad;
overseas authorized businesses that carry out activities through stable registration in Romania, for the connected revenues;
overseas authorized businesses and non-resident individuals that perform activity in Romania in an association without legal personality, for the portion of the taxable revenue of the association attributable to each person;
overseas authorized businesses making revenue from immovable property located in Romania or from the sale/assignment of shares of a Romanian legal business for the taxable profit related to such revenues;
Romanian authorized businesses and resident individuals, for the income obtained both in Romania and overseas from associations without legal personality for the taxable profit of the association attributable to the resident individuals. Standard quota The standard profit tax rate applicable to taxable profit amounts to 16%. Taxpayers making activities as night-bars, casinos, disco, private clubs or sports betting and for which the profit tax owed is less than 5 % of the respective incomes have to pay a tax of 5 % of the incomes realized from such activities. Businesses having an annual turnover of up to EUR 100,000 and having one to nine employees (so called micro-enterprises) are taxed at 2% in 2007, 2,5% in 2008, and 3% in 2009 of their income, consequently not of their profit.
Calculation of taxable profit. The taxable profit is computed as the difference obtained from any source and expenses incurred for the purpose of obtaining the year, from which non-taxable incomes are deducted and to which non-deductible According to Fiscal Code, the following incomes are deemed as non-taxable:
The dividends obtained from an overseas legal company resident within a member state of the European Union won't be taxable given that the Romanian legal body company no less than a quarter of the participation titles of the particular overseas legal corporation for an continuous interval of at least 2 years finished on the date of paying the dividend; in whichever other situation, the tax on dividends is 16% and is commonly retained by the issuer previous the compensation of shareholders.
Positive value distinctions for participation titles inventoried as a consequence of registering the emergency supplies, profits or issuance premiums by the legal corporation where the participation titles are possess, along with the plus from long-term monetary ventures' reassessment. This kind of plusses are chargeable on the date of their transfer for free, allocation, withdrawal of the participation titles in addition to the date of withdrawing the share capital of the legal entity in which the participation titles are kept;
An outflow is tax deductible given that it is incurred with the intention of producing taxable income counting that which is offered by authorized operational ratification. As stated by the Fiscal Code the following outflows are regarded to be incurred with the intention of obtaining revenues:
management's training and improvement expenses, IT systems, running, upholding and upgrading of quality management systems, acquiring quality standards certifications;
environment protection costs as well as the conservation of resources;
buying packages type of cots of long-term products, established by the taxpayer;
work protection type of outflows realized, as stated by the law and outflows realized for labor accidents' prevention as well as professional illness;
subscription costs, charges and compulsory payments, according to the legal endorsements in force, in addition to assistance to the fund for negotiating the collective labor accord;
qualified instruction costs;
labor accidents insurance' contributions for insurance against and as well as professional disease, professional danger insurance premiums;
media hype and promotion type of costs realized for advertise the company, products or services, based on a written contract, as well as costs associated with the production of materials necessary for dissemination of publicity messages;
shipping and lodgings costs within the borders and overseas carried out by members of staff and managers, given that the business documentation profit in that year or the preceding ones;
costs related to the advertising, promotion and marketing on old or new markets, market research, participation in fairs and exhibitions, leaflets and advertising materials, business exercise;
innovation, research and development costs which are not considered intangible possessions;
deficits appeared from the result of erasing writing-off non-cashed receivables, in the subsequent situations: a.. the death of the nonpayer and the debts can not be received from the descendants; b. the debtors' liquidation course of action has been finished based on a court decision; c. the nonpayer is dissolved in case of the limited liability company with a single shareholder or is closed without descendant; and finally, d. the nonpayer has big economic problems affecting its entire patrimony.
Limited deductibility expenses The next costs cover limited deductibility:
costs for the functioning, preservation and fixing related to the establishment within a private residence, utilized for individual uses, deductible within the limit matching to the sections made available to the company on account of agreements signed in this sense; and expenses of functioning, preservation and fixing related to cars used by employees with executive or running hierarchical positions of the legal person, deductible taking into consideration the law: one car for each employee. Only justified with officially authorized papers such expenses become deductible for tax purposes.
return of the staff's voyage allowances in Romania as well as abroad, inside the limit of 2.5 times the officially authorized level set up for public institutions, on condition that the taxpayer achieves profit in the present and/or preceding years; if this isn't the case, then such costs are deductible up to the level set up for public institutions;
costs for interest and differences in the exchange rate, within specified boundaries;
decline, within specified boundaries;
costs realized on behalf of an staff for optional professional retirement fund schemes, within the limit of the equivalent in ROL of EURO 200 within a fiscal year for each member;
etiquette and protocol costs inside the 2% limit as the difference between total taxable incomes and total expenses related to taxable revenues, different than protocol costs and profit tax expense costs for personal health insurance premiums, in the limit of the equivalent in ROL of EURO 200 within a fiscal year per one member;
costs for the functioning, preservation and fixing of job residences situated in the company's office registration town or the secondary offices are established, deductible within the edge corresponding to the built perimeters according to the law on residences, which is augmented (from a fiscal perspective) by 10%. The non-deductible difference must be recuperated from receiver/users;
social expenses, inside the limit of up to 2% of the salary deposit achieved.
perishables, within the limits set up by specialized organisms of the central administration, in cooperation with specialized institutions, with the consent of the Ministry of Public Finance;
expenses for food tickets accorded to staff;
costs for fees and dues to professional organizations and NGOs, annually amounting to maximum value of the ROL equal of 2,000 euro;
in certain limits, costs for provisions and stocks;
Fiscal depreciation. The expenses linked to the purchase, manufacture, building, assembly, setting up or upgrading of depreciable fixed assets are fiscally recuperated by deducting depreciation expenses. The depreciation system for a depreciable fixed asset must be determined in accordance with the subsequent regulations:
in the buildings situation, the straight-line method of depreciation musr be applied;
in the technological equipment situation, correspondingly machines, tools and installations, plus computers and equipment peripheral to computers, the taxpayer may decide the straight-line method, the declining balance method or the accelerated depreciation method; and
in the situation of another depreciable fixed asset, the taxpayer could decide to use the straight-line method of depreciation or the declining balance method of depreciation.