Romanian tax climate

Romanian tax climate improves this year,  state tax collection still unsatisfactory 

Tax authorities of the European Union as well as those across the ocean have lately intensified their efforts to identify allsources of taxation of all their tax payers, irrespective of the place where such income is obtained. A further step is to tax such income at the place of the fiscal residence of each tax payer. In order to achieve this goal, tax authorities have pledgedto offer mutual support by a permanent exchange of information. Romania also entered this project, as a member of the European Union. The advantages of this approach have remained unclear for Romania for the moment, as the local tax authorities here are still facing great problems upon collecting taxes in their homeland!

As the Finance Ministry has not been able to collect enough of the taxes due, the corporate world fears that it is going to raise the taxation level in 2015, under the cumulated pressure exerted by several factors: commitment to diminish the deficit to 1.4% from GDP, decrease the health insurance by 5%, necessarily increase defense costs, as a result of political developments in the area, co-financing of projects under contract, amounting to an estimated deficit total of 15 to 20 billion RON.

A decrease of the VAT rate is necessary! But are we able to sustain this?

An increase in the tax burden would be a counterproductive measure that would be utterly unjust for those paying their taxes duly. I don’t think Romanian fiscal authorities are not aware of the fact that there is a direct relationship between the level of taxation and the degree of voluntary conformation, translated into the tax payers’ capacity of paying their taxes in the right amount and in due time. A simple demonstration is offered by the collection of output VAT, which is our weakness. In 2013, we had an efficiency degree of 56% in the application of VAT rules, whereas our Bulgarian neighbors registered a rate of 73%. As a result, with a tax rate of 24%, we collected output VAT reaching 8.74% from GDP and Bulgaria, with a rate of only 20%, reached 9.22% from their GDP! This clearlyproves that, in the long run, lower taxes bring more money to the state treasury! Unfortunately, it is easier for the Finance Ministry to increase tax rates than to make the effort of collecting duetaxes!

There are also achievements!

The report „Paying Taxes 2015” marks Romania’s ascension by 76 positions in a top monitoring the activity of tax authorities from 189 economies of the entire world. As a result, Romania enjoys the highest advancement of 2015!

The improvement of the relation between the National Revenue Office and the tax payers is due to several projects, among which the following are worth mentioning: an extension of the online registration and payment of tax liabilities, the project regarding the informatization of the Internal Revenue Office, developed in partnership with the World Bank and aiming at an increase of the efficiency in collecting taxes and social contributions, fiscal discipline and an a reduction in bureaucracy.

Compared to the data from last year, „Paying Taxes 2015” highlights the following issues:

  • The number of hours needed for paying taxes diminished from 200 to 159 hours at present;
  • The number of payments / year diminished from 39 to 14.
  • The share of taxes in the total corporate income increased slightly from 42.9% to 43.2%.

Compared to the states of the Central and Eastern Europe, Romania registered the greatest progress inincreasing the efficiency of tax collection over the past two years and it is ranked now above countries such as Hungary (88th place), Poland (87th place), Czech Republic (119th place), Slovakia (100th place) or Bulgaria (89th place).

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