After 20 years, fiscal reform is far from being complete

After 20 years of reforms, Romania has not yet joined the Western elite in terms of tax collection and tax law enforcement.

“From certain perspectives, the fiscal development level in a country is directly proportional to the maturity level of the economy. In Romania, the tax system has undergone numerous development stages, in an effort to meet the demands of the business environment. Companies we have talked to, have acknowledged the progress of the system and ticked off a series of fiscal advantages. However, concerns have been expressed regarding the interpretation of tax procedures and the poor fiscal stability, enforcement and transparency”, said Rodica Segarceanu (photo), Partner Deloitte Tax and head of International & Corporate Tax.

“I can say that the legislative process in Romania is in line with the standards of the European Union. But the enforcement of these standards is what fails to be within the EU spirit. According to World Bank, taxation rates, regulation and fiscal administration are the key elements for the business environment during investment decision-making process. Romania has managed to develop its fiscal system over the past 20 years, but the reform is far from being complete, and this pitfall reflects in the country’s capacity to attract foreign investors and in the performance of the local business sector”, said Pieter Wessel, Partner Deloitte Tax and head of VAT team.

With a high budget gap and sagging state revenues, George Mucibabici (photo), Chairman Deloitte Romania said the International Monetary Fund and Romanian government could agree on a VAT raise, although the best way to support the economy and keep it at the current level is to find other solutions to mend public finances.

“I expect the authorities to raise the VAT because it is a fast solution, at hand, and because on the other hand, nobody touches the single tax. We have to take into account what happens around us. Many European countries advocate single tax device that we have been pioneers in,” George Mucibabici Chairman Deloitte Romania said in a press conference.

The head of the auditor in Romania added Romanian government should find solutions to improve tax collection by following the American pattern, where the agency responsible for tax law enforcement analyzes taxpayers’ incomes by comparing them with their possessions and with their statements.

Pieter Wessel, partner at Deloitte stressed that the raise of VAT was a solution at hand for the government, as for this type of tax the certainty of a fast collection is higher.

The raise of the VAT would be the least bad of all the options, as it doesn’t bring about an increase in manufacturing costs. However, if other taxes had been raised, than labor costs would have increased accordingly, and this would inevitably reflect in the production costs.