Romania: Technical Assistance Report on Reforming Personal Income Taxation
IMF Staff Country Reports, June 29, 2022
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- Romania: Technical Assistance Report on Reforming Personal Income Taxation
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Bibliographic details
- Published: June 29, 2022
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9798400211393.002
Context and fiscal challenge
- Romania has "one of the lowest revenues in the EU".
- Projected budget deficit "exceeding 7 percent of gross domestic product (GDP)".
Core findings
- The personal income tax (PIT) is integral to balancing "revenue, efficiency, and distribution considerations".
- PIT reform should both "support revenue and reduce inequality".
- Introducing "a new employment income bracket with a moderate top PIT rate, for example of 20 percent" is recommended.
- A policy combining "20 percent tax on the top decile of the income distribution and the existing 10 percent on the rest of the income distribution raises revenues by 1 percent of GDP, while leaving the majority of taxpayers unaffected."
Revenue and distribution implications (specific figures)
- Top PIT example rate: 20 percent.
- Existing baseline PIT rate: 10 percent.
- Revenue gain from proposed two-rate structure: 1 percent of GDP.
- Fiscal context: projected budget deficit exceeding 7 percent of GDP.
Tax base integrity: self-employed, microenterprises, and freelancers
- "The taxation of the self-employed and microenterprises should be strengthened to close revenue leakages and safeguard the integrity of the tax system."
- Recommendation for freelancers: "pay social security contributions on their total net income, possibly up to a cap."
Policy recommendations (summarized)
- Introduce a new employment income bracket with a moderate top PIT rate (example: 20 percent).
- Implement a two-rate PIT structure: 20 percent on top decile, 10 percent on remaining incomes, to raise revenues by 1 percent of GDP while minimizing impact on the majority of taxpayers.
- Strengthen taxation of the self-employed and microenterprises to prevent revenue leakages.
- Require freelancers to pay social security contributions on total net income, with consideration of a cap.
International Monetary Fund. Fiscal Affairs Dept. "Romania: Technical Assistance Report on Reforming Personal Income Taxation", IMF Staff Country Reports 2022, 199 (2022).
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