Expert signals flaws in indirect determination of income

Under the new mechanism of indirect determination of income, it would take individuals up to 7 months and 3,000 lei in fees to confirm the availability of funds as of January 1 and avoid their taxation, according to an IDIS Viitorul study, authored by Gheorghe Costandachi, a doctor of economics. In the expert's opinion, confirmation procedures are overly bureaucratized. “To confirm an amount of money received from a third-degree relative in the form of a loan or remittances, one should produce up to 23 certificates which prove kinship, including birth, death and marriage certificates of parents, grandparents and great grandparents – an entire list of ancestors. We could come to see remittances reduced in half within a couple of years. People will find other ways of sending money home circumventing official channels to avoid taxation”, said Gheorghe Costandachi. He asserts that some provisions leave room for loose interpretation or contradict one another; the procedure of selecting the subjects of indirect estimation is also unclear. “Particularly worrying are the provisions that allow tax inspectors to enter the dwelling of the subject selected for inspection, even if he or she does not own that property. It is unclear what would the scope of this indirect fiscal verification be; what exactly would be inspected at the subject's place: the furniture, home appliances, jewelry, clothes?” IMF Resident Representative Tokhir Mirzoev noted that indirect methods of determining income are employed in many countries, including neighboring Romania, and that they allow to put all taxpayers on equal footing. “At all kinds of meetings we are talking about the fiscal burden falling on the public employees and on the persons with small and medium incomes. The application of these indirect methods of determining income will put people with high incomes in the situation of voluntarily complying with their obligation to pay taxes in a duly manner”, said the IMF official, admitting at the same time that the secondary legislation putting these methods in practice need to be improved. Starting 2013, indirect methods of determining income will be applied to individuals who earn more than 1 million lei a year without being engaged in entrepreneurial activities, or who have individual expenses exceeding 500,000 lei. Individuals who possessed large funds as of 1 January 2012 are to submit a declaration by the end of the year to avoid their taxation.