The European Commission released the European Economic Forecast for Winter 2016 according to which the Romanian Economy is expected to peak in 2016, before slowly contracting in 2017. When it comes to policies, due to tax cuts and expenditure increases, the fiscal deficit is set to increase substantially, and at the same time, new legal initiatives in the financial sector pose risks to the macroeconomic outlook. Whereas the GDP for 2016 is expected to reach 4.2%, for the following year it is to set lower, at 3.7%, yet still among the best performing EU economies. Inflation is also expected to go up, from the negative average of -0.2% to 2.5% in 2017, while the Gross public debt is presented as advancing at the same pace, from 40.5% to 42.6% of GDP. 

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Political debates on the electoral law continue to divide the local political scene. While the National Liberals demanded Prime Minister Dacian Cioloș to issue an emergency ordinance reinstating the two-round vote on local elections, the Social Democrats strongly oppose the proposition, rendering it unconstitutional. PSD’s Liviu Dragnea went as far as warning that his party would boycott the election if the Government forces the change to a two-round system for local elections. 

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Tax checks, local taxes, and international regulations are the main fiscal challenges that companies are facing in 2016, Ernst & Young warns. Apart from the tax modifications brought by the new Tax Code this year, equally important but less noticed are the ones in the Tax Procedure Code. In case of the latter, tax consultants stress that the Tax Procedure Code is a crucial element for companies that have to go to Court to justify their documents, since the "tendency to criminalize tax problems" has become one of the main concerns of local companies.  

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A relevant topic for discussion this week has been the correlation of the recently enforced Fiscal Code with the Fiscal Procedure Code that came into effect in mid-January. Tax advisers adopt a cautious stance toward the enforcement of the new legislation, given the current practices of tax authorities that tend to use fiscal controls as preliminary to criminal investigations. The correlation of the two codes and the taxation methodology represents the issue at stake for the upcoming period. It is worth noticing that tax authorities appear to be more responsive to the market, as recently the head of ANAF announced an agreement for mutual assistance between the authority he runs and medium and large taxpayers. By proposing the option of mutual assistance, ANAF aims at lowering the bureaucratic burden for large taxpayers, as well as at simplifying the control procedures. This way, ANAF aims to introduce a simplification of the fiscal procedure for companies based on cooperation.

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Debates over the modification of the electoral legislation continued over the past week, with the two main politic parties taking opposite sides in the debate over the two-round local elections to be held on June 5. PNL demanded PM Dacian Cioloș to pass an emergency ordinance modifying the electoral law for the locals to a two-round system, while PSD strongly opposed this request, arguing that it is unconstitutional to amend the electoral law during the election year. On the other hand, Constitutional Court Judge Augustin Zegrean informed that as long as the elections are organized in a democratic manner, the number of rounds or the modification of the law are political matters that do not interfere with the provisions of the Constitution.

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