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IMF Country Report No. 22/199

ROMANIA

TECHNICAL ASSISTANCE REPORT ON REFORMING PERSONAL INCOME TAXATION

June 2022

This technical assistance report on Romania was prepared by a staff team of the International Monetary Fund. It is based on the information available at the time it was completed in June 2022.

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Title page

FISCAL AFFAIRS DEPARTMENT

Romania

Reforming Personal Income Taxation

Shafik Hebous, Naomi Feldman, Jean-Francois Wen, and Philippe Wingender

Technical Report

June 2022

The contents of this report constitute technical advice provided by the staff of the International Monetary Fund (IMF) to the authorities of Romania (the “TA recipient”) in response to their request for technical assistance. This report (in whole or in part) or summaries thereof may be disclosed by the IMF to IMF Executive Directors and members of their staff, as well as to other agencies or instrumentalities of the TA recipient, and upon their request, to World Bank staff and other technical assistance providers and donors with legitimate interest, unless the TA recipient specifically objects to such disclosure (see Operational Guidelines for the Dissemination of Technical Assistance Information— http://0-www-imf-org.library.svsu.edu/external/np/pp/eng/2013/061013.pdf). Disclosure of this report (in whole or in part) or summaries thereof to parties outside the IMF other than agencies or instrumentalities of the TA recipient, World Bank staff, other technical assistance providers and donors with legitimate interest shall require the explicit consent of the TA recipient and the IMF’s Fiscal Affairs Department.

Contents

  • ABBREVIATIONS AND ACRONYMS

  • PREFACE

  • EXECUTIVE SUMMARY

  • I. INTRODUCTION

  • II. CURRENT ISSUES

  • III. ANCHORING REFORM OBJECTIVES

  • A. Implications of the Current PIT

  • B. Illustrative Scenarios Based on Optimal Taxation Principles

  • IV. PIT REFORM OPTIONS FOR ROMANIA

  • REFERENCES

  • BOXES

  • 1. The Special Importance of Agriculture in Romania

  • 2. Effective Tax Rates

  • FIGURES

  • 1. Personal Income Tax Revenue and Rates in the EU, 2019

  • 2. Net Income by Country (for a Couple without Children), 2021

  • 3. Income Inequality

  • 4. Tax Rates on Various Income Sources and Legal Forms (Percent)

  • 5. Income Distributions, 2021

  • 6. Average Tax Rates, 2021

  • 7. Marginal Effective Tax Rates on Wages (Including SSCs and Benefits)

  • 8. Gross and Disposable Income

  • 9. Policy Weight on Marginal

  • 10. Optimal Tax Reform: Impact on Effective Tax Rates

  • 11. Net Gains from Optimal Reform

  • 12. Marginal Effective Tax Rates

  • 13. Effective Tax Rates and the Organizational, Varying Profitability

  • 14. Employment in Agriculture

  • 15. Turnover and Profitability of Micro enterprises

  • TABLES

  • 1. INCOME SUMMARY STATISTICS (ANNUAL FIGURES), 2021

  • 2. TAX AND BENEFT PARAMETERS: CURRENT AND OPTIMAL REFORMS

  • 3. ECONOMIC IMPACTS OF THE OPTIMAL REFORMS

  • 4. TAX AND BENEFIT PARAMETERS: REFORMS TO INCREASE REVENUES BY 1 PERCENT OF GDP

  • 5. ILLUSTRATIVE PROGRESSIVE PIT SCALE

  • 6. EFFECTIVE TAX RATES AND THE ORGANIZATIONAL FORM

  • APPENDICES

  • 1. Optimal Taxation

  • 2. Illustrative Progressive PIT Scale

  • 3. Description of the Microenterprise Sector

Abbreviations and Acronyms

ANAF

National Agency for Fiscal Administration

CIT

Corporate Income Tax

EC

European Commission

ETR

Effective Tax Rate

EU

European Union

EUR

EUROMOD

A Tax-Benefit Microsimulation Model for the EU

FAD

Fiscal Affairs Department (of the IMF)

GDP

Gross Domestic Product

IMF

International Monetary Fund

METR

Marginal Effective Tax Rate

MOF

Ministry of Finance

OECD

Organisation for Economic Cooperation and Development

PIT

Personal Income Tax

RON

The currency of Romania: 1 Romanian Leu = 0.21 USD or 0.2 Euro (as of May 2022)

RRF

Recovery and Resilience Facility

SILC

Survey on Income and Living Conditions

SSC

Social Security Contribution

USD

U.S. Dollar

VAT

Value-Added Tax

Preface

At the request of Ministry of Finance, a team headed by the IMF Fiscal Affairs Department conducted a ‘remote’ mission to Romania during May 9–19, 2022, to assist the authorities in reviewing personal income taxation. The mission comprised Shafik Hebous (mission head), Jean-Francois Wen (FAD), Philippe Wingender (RES), and Naomi Feldman (FAD expert).

The mission held discussions with the Ministry of Finance (MoF) led by the Minister of Finance Mr. Adrian Câciu and including Mr. Alin Chitu (Secretary of State), and Mr. Dan Matei (Director General). The team also held meetings with officials from National Agency for Fiscal Administration, the Ministry of Labor, and the Ministry of Agriculture and Rural Development.

The mission also met with representatives of the Fiscal Council led by Mr. Daniel Dăianu, (Chairman), Mr. Bogdan-Octavian Cozmâncă (Deputy Chairman), as well as members of the Working Group of the Fiscal Council including Mr. Gabriel Biris, Ms. Delia Fiorina Cataramă, and Mr. lonut Dumitru.

The mission team would like to express its sincere thanks to the authorities for the constructive discussions and for Ms. Carmen Balasoiu and Mr. Elian Diculescu for the excellent organization throughout the mission, facilitating access to data, and the informative discussions. The mission team also thanks Mr. Liviu Voinea (Senior Advisor to Executive Director at the IMF).

Romania: Technical Assistance Report on Reforming Personal Income Taxation
Author: International Monetary Fund. Fiscal Affairs Dept.