A group of experts, comprising mainly tax experts but also economists, such as the head of the Tax Council Daniel Daianu and the chief economist of the central bank Valentin Lazea, proposed an analysis of the tax system in Romania and a set of measures expected additional revenue up to 4% of GDP.
The general recommendations expressed by the experts are remarkably consistent with the rhetoric of the doyen of the Social Democratic Party (PSD).
“It is not fair that entire industries, or social classes, are treated preferentially and that aggressive tax avoidance is allowed through various loopholes left in tax law. The overhaul of taxation must take into account key issues of transparency, fairness, proper distribution of the burden of adjustments to various adverse shocks, solidarity, encouragement of labor market participation, encouragement of payment compliance, and fulfillment of obligations, discouragement of tax evasion and tax arbitrage,” according to the document, quoted by Cursdeguvernare.ro.
Notably, the experts’ proposal to cap social security contributions for aggregate income removes a major hurdle and opens the door to more sophisticated (possibly progressive) income taxation. One of the main arguments against progressive taxation was that “it would be too complicated”.
Other measures proposed by the experts supported by the Tax Council would have the support of social democrats – but not so much the support of entrepreneurs or companies: increasing the tax rate on dividends from 5% to 10%, eliminating income tax exemptions in certain sectors (IT, constructions), lowering the threshold for preferential corporate tax on income as opposed to a tax on profits), prohibiting the ownership of multiple micro-enterprises and generally eliminating all lucrative loopholes.
“If the recommendations of this study were implemented, tax revenues could increase by about 3.7% to 4.7% of GDP. About half of this increase would come from the elimination of exemptions and discriminatory treatments ( in particular income tax and income tax), about a third – from improving collection (in particular VAT) and about a sixth – from increasing tax rates (in especially environmental and property taxes),” the experts say.
Such an increase would allow the necessary budgetary correction to emerge from the excessive deficit procedure and, above all, the improvement of Romania’s financial solidity, and the sustainability of the public debt.
(Photo: Kittichai Boonpong/Dreamstime)