THE IMPACT OF THE INSTABILITY AND UNPREDICTABILITY OF THE TAX ENVIRONMENT ON THE ECONOMY

Abstract

The tax rate on the profits of Romanian companies is among the lowest, but the value of foreign investments does not reflect this. Thus, we deduce that there are other factors that influence foreign investments. Our hypothesis is that such factors are the complexity of tax legislation (i.e. bureaucracy), instability and unpredictability of the fiscal environment etc. In this research we will investigate the impact of the instability and the unpredictability of the fiscal environment on the Romanian economy. By instability, we mean frequent changes to regulations; by unpredictability we understand the lack of coherence of the changes. According to the literature, the effort made by a company to ensure regulatory compliance is, generally, greater than the benefits generated by a reduced tax rate. The research question is: “In an economic environment with a rapid evolution and a dependence on international financial markets, how do companies identify, quantify and diminish the fiscal risk generated by the unpredictability and instability of the tax environment?” The research is based on a questionnaire, which was distributed to persons attending specialized courses. The target group consists of financial and accounting professionals and tax professionals. The results are: the instability and the unpredictability of the fiscal environment adversely affect the decisions of the investors, thus the economy.

Keywords

• taxation
• tax uncertainty
• investment
• fiscal risk
• tax compliance