The current area-based property tax system in Romania is inefficient, producing revenue below its potential, while the taxable value determination is inequitable and complex. Indeed, the property tax only generated 0.6 percent of GDP in 2021 vs. the average of 1.8 percent of GDP in the OECD economies, or 0.9 percent of GDP in EU-27. Meanwhile, significant scope for improving both buoyancy and efficiency of the property tax system exists, not least through the elimination of multiple exemptions, addressing the current inadequate and fragmented self-declaration system of residential buildings that translates into incomplete fiscal cadasters.
With one of the lowest revenues in the EU and a projected budget deficit exceeding 7 percent of GDP, Romania should rely on an array of tax (policy and administration) instruments to mobilize revenues. A fundamental question facing Romania’s reform efforts is how to spread the burden of the tax in an equitable manner, especially given the already relatively high income inequality. The fiscal system as a whole currently provides little income support at the bottom of the income distribution.