In recent years, the PSD has hinted that we will be the only country in the EU that still has a progressive tax. It is not true. There are countries with a single rate and also countries with a double rate (which is not a progressive tax). Progressive should have a system of deductions, collect all income and pay tax according to those quotas.

“Many politicians say that we remain the only country with a single quota, and this is not true. We have competitors. Hungary has 15%, the Czech Republic and Poland do not have a progressive quota, but two quotas: it is not the only one, but it is not progressive either. The Czech Republic has 15% on up to €60,000 per year and 23% on more than €60,000 per year. In Poland, 12% and 32%: with a marginal income of 23,000 euros per year. Bulgaria has a unique quota of 10%,” said Angela Roska, Managing Partner of Taxhouse-Taxand Romania, at the TaxEU Forum.

Let’s not forget that we have 10% after the contributions have shifted from employers to employees. Basically, we still pay the same amount to the state (dividends), only the percentage of contributions has changed.

Recommendation to introduce a progressive quota in Romania on the recommendation of the Government of the Bahamas / IMF thanks Liviu Voinea

“Why in the study published in 2022 by the IMF (no on progressive taxation) do they thank Mr. Liviu Voinea? I thank him for the order, for ordering the research. It states that the study was commissioned by the Romanian government. Only in the preamble, which is a charm to copy/paste from report formats, they forgot to remove the Bahamas and put in Romania. A study published by the IMF states that the recommendation for a progressive quota in Romania was made at the request of the government of the Bahamas (the IMF later corrected its report no.),” said lawyer Gabriel Biris, former secretary of state. in the Ministry of Finance.

According to him, when you look at these studies, you are a little shocked.

“There is no expert in these studies. Did they come to the Chamber of Tax Advisors to be part of the team? No! There is no Romanian tax law expert. No one knows what is happening in the grass. We treat them like light,” Biris also noted.

Didn’t progressive quotas bring more money to the budget? No!

“We had progressive quotas. Did they bring more money to the budget? I looked at how much the income tax brought to the budget over the past 23 years. In the first 5 years, there were progressive quotas from 18 to 40% for work. Real estate speculation was taxed at zero, profit from the sale of shares – 1%, and dividends – 5%. In the first 5 years, we had an average of about 2.8% of GDP income. A single tax rate is imposed on wages, not on income. In the program, they wrote income tax and did it on salary, because one was a minister and had investments in the stock market and had to keep 1%, others speculated in real estate and did not want to pay taxes, and they decreased. In 2007, the share of income was set at the level of 3.3% of GDP and kept on average at the level of 3.35% for 10 years,” the lawyer said.

If we look at that level of 3.35% and compare it to the 2.25% that we had under progressive rates, that’s more, he said.

“Why are the IMF, the World Bank and the political decision-makers in Romania now saying that we should go back to a system that didn’t work and cost a lot more? “Probably, the introduction of progressive quotas will bring about 4-5 million additional declarations, which also need to be issued,” Birish said.

Isn’t it better to fix what worked than to implement what didn’t work?”, he wonders.

“How do IMF and World Bank experts justify recommendations to return to progressive rates? Did they look at historical data? I am convinced that no, that I did not see them there. If they were looking, we saw them,” said the tax official.

IMF Scenario for a Progressive Tax in Romania

The IMF report refers to the introduction of a 20% rate for the top decile of the income distribution (while maintaining a 10% rate for the top decile). According to the international organization, this will not affect most taxpayers. According to this reform scenario, approximately 5.6 million taxpayers will not pay higher taxes, but only 650,000 Romanians. This will bring an additional income of 1% of GDP.

It also recommends introducing tax breaks for people with incomes in the bottom decile of the income distribution. The goal is to encourage participation in the labor market.

Assuming a household earns 10,610 lei per year, it will receive an additional compensation of 4,031 lei, or 38% of its gross income. This reform scenario would not affect the average tax rate for the 10th and 90th deciles, and it falls for the bottom decile, while it rises for the top.

In Romania, we have a lot of workers who seem to be on the minimum wage because of the micro-enterprise regime. According to IMF data, about 1 million such paid employment contracts are concluded in micro-enterprises. Therefore, the IMF says that before resorting to such measures, microenterprise reform is needed.

The right system of tax credits will stimulate labor supply and can have a lower budgetary cost of income to support progressivity.

In addition to the 10/20% scenario, the IMF says that 16%/20% or 16%/25% scenarios could also be created.

What scenarios has the World Bank developed when it comes to the introduction of a progressive tax in Romania

The World Bank put forward some ideas for the introduction of a progressive tax in a report in the summer.

• Scenario 1: keep current rates, abolish personal income tax relief and increase the level of the basic benefit (personal deduction). Tax neutral impact as the increase in deduction is offset by the elimination of benefits.
• Scenario 2: Increase income tax from 10% to 13% and introduce a refundable tax credit for low incomes.
• Scenario 3: abolition of CAS deduction, introduction of three progressive rates of personal income tax from work (6% for incomes up to 80,000 RON/year; 12% for incomes from 80,001 RON/year to 189,000 RON/year; 18% for incomes over 189,000 RON/year) and the introduction of a refundable tax credit for incomes with reduced wages.
• Scenario 4: Abolition of CASS, abolition of CAS deduction and introduction of three progressive rates of personal income tax from work (10% for incomes up to 42,000 RON/year; 20% for incomes from 42,001 RON/year and 100,000 RON/year ; 25% for incomes over 100,000 RON/year).