Romanian Government published the Ordinance project for amending and supplementing Law no. 571/2003 regarding the Fiscal Code and regulation of some fiscal measures. The measures proposed, without any prior consultation with industry stakeholders, are targeting, among others, REPEAL art. 42 letter k) of the Tax Code, as follows:
"Non taxable income
For the purposes of income tax, these revenues are NOT taxable:
k) income from agriculture and forestry, except as provided in Art. 71 "
These provisions, in force in the period 2003-2013, were explained by methodological rules (Decision no. 44 of 22 January 2004, with subsequent amendments):
k) income from agriculture and forestry, except as provided in Art. 71;
9. In the category of income from agriculture and forestry there are considered non taxable:
– Income of owner / lessee from the recovery in natural state of products from agricultural and forest land, privately owned or leased. Starting January 1, 2008 are taxable income money made from the sale of agricultural products obtained after harvesting, in natural state, from the agricultural land, private, or leased toward collection by specialized units, industrial processing units or other units, for use as such.
– Income of individuals associated in an association according to Art. 28 of Law no. 1/2000 to reconstitute the ownership of agricultural land and forest claimed under provisions of the Land Law no. 18/1991 and Law no. 169/1997, with subsequent amendments, from the exploitation of forestry products to the law.
– Income from: livestock and poultry, beekeeping and sericulture;
– Income received by individuals from turning in its natural state, by specialized units such as centers or points of purchase, harvested or caught products in the wild flora and fauna.
10. There are considered in natural state: agricultural products obtained after harvesting, the timber standing or turned into logs or in balls and animal products such as milk, wool and eggs, hides and others, plants and animals of wild flora and fauna, such as herbs, berries, mushrooms, snails, clams, snakes, frogs and others alike.
Correlated with the proposed amendment of art. 41 letter f) and Art. 43 letter f), the Romanian Government's intention is to set a tax rate of 16% on all income from forestry.
Art. 71 paragraph (2) from the project, the income from forestry is defined as "income from harvesting national forest specific products, namely wood and non-wood products," but are not established minimum areas to be exempt from taxes (smallholders) as desired for income from agricultural activities, where it was proposed an area of 2 hectares for which income is non taxable.
It thus violates the constitutional principle of equality before the law and the principle of equal treatment of persons in similar situations.
The project also establishes that taxation will be made on the basis of income rules, though, at least in the case of forest land, in principle operating age, depending on the species, is 80-120 years, so not every year we can obtain the revenues expected by the state, but only when forest management will allow it. Although the recovery period is very high, every year it pays a tax on privately owned forest land area (plus the costs of security and forestry services, also required by law).
Moreover, under the proposed amendments from section 91 of the Ordinance (art. 29624) persons who obtain incomes from forestry will also have to pay in advance with the title of SOCIAL CONTRIBUTIONS: both HEALTH INSURANCE CONTRIBUTIONS wich will be paid anticipated quarterly and SOCIAL SECURITY CONTRIBUTIONS, which will be paid monthly.
Obviously, the financial pressure through excessive taxation will reflect the environment: higher taxes, regardless of the realization of revenue on an area so sensitive as the forest, will mean a greater amount of wood put in value and exploited.
Besides all this, we want to highlight the following analysis:
1. in the case of farm incomes, their collection is simplified by rules of income, taxation above a certain income level (corresponding to the limit of self-consumption / commercial sale / subsidized agricultural production). Taxation overlaps the subsidized farming area for which there is a database and the possibility of control, based on granted subsidies (much higher than taxes);
2. in the case of forests there are no subsidies and there is no database enabling control;
3. forestry is already taxed through forest land tax (this tax is twice the net average revenue achieved by RNP Romsilva / ha);
4. Forestry is additional taxed through the environment tax;
5. the average net income realized by Romsilva from state forest management has been in the past 3 years from 8-10 lei / ha. A 16% share of this value means 1-1.5 lei / ha of agricultural income tax;
6. there are approximately 500,000 forest owners with properties below 1 ha. So there will be 500,000 taxpayers who will pay the 1-1.5 lei taxes / ha. Even if we consider the net income 3 times higher than the one obtained by Romsilva (why is Romsilva so inefficient?), the tax is still modest (3-5 lei / ha);
7. expenses for the collection of this moderate tax are huge (single entry bookkeeping, income statement, social contribution statements, impossibility of verification, correspondence from financial administrations and taxpayers, etc);
8. considering that would collect taxes on incomes from forestry on 1.000.000 ha at the level of 3-5 lei / ha, revenues were up 5,000,000 lei (1,000,000 euro), from several hundred thousand homeowners ;
9. there is an area of about 500,000 ha unmanaged (without security) – subject to illegal logging and degradation. Additional taxes will make it more difficult taking in any form these surfaces in forest administration. For many owners, in order to cut longer and to avoid the tax income, the temptation to remove forests from forest administration will increase, and the phenomenon will lead to increased illegal logging of forests;
10. amending the Tax Code provides a royalty of 0.5% for natural resources exploatation, which shall apply to income from forestry.
– Incomes from forestry are very low (see Romsilva results);
– Those incomes are already taxed through forest land tax, environmental tax (aberrant, the forest is an important creator of healthy environment), guard duty and forestry service taxes;
– Additional tax is unrealistic, with fiscal administration costs higher than revenues;
– Additional tax will increase the surface of unmanaged forests and illegal logging, with much higher social costs than the taxes collected.
We reiterate our desire: governors to finish this policy of deterrence, of preventing the awakening sense of ownership: it would be normal for the state to indemnify us, we are whole communities affected: we love the forest because we depend vital on it – do not force us to cut or sell it. Forests are cut every 100 or 140 years. In this time, if we would pay all the taxes that politicians devise, would mean to pay several times the value of the forest. Being the owner does not mean you redeem the property from the state every few years by a system burdened by taxes.
NOSTRA SILVA – FEDERATION OF FOREST AND PASTURE OWNERS IN ROMANIA
Executive Vice President
Bogdan Ioan TUDOR TODORAN