From a recent announcement by ANAF, we learn that “in the middle of the year, 33,442 taxpayers owed more than 81.8 billion lei to the state budget.” In addition, we learn that the problem is not with large taxpayers (the debt of 93 large companies is about 5 billion lei, i.e. 6% of the amount), but, above all, with small taxpayers.

The amount is impressive and reflects several tax compliance issues that directly affect the state’s tax collection.

It is clear that the direct and most important beneficiary of rising prices (inflation) is the state budget

In addition, the implementation of the budget for 6 months from the fiscal revenue side shows a significant increase in the main taxes collected by the state (VAT and income tax) by approximately 26-27%, and stagnation of excise duty collection (excise duty revenue increased by only 1 %, they are calculated as fixed amounts related to the quantity sold, thus explaining why they did not increase significantly, since their dynamics are an exclusive expression of the increase in the volume of goods sold on the market). It is clear that the direct and most important beneficiary of rising prices (inflation) is the state budget.

But this cannot be said about the collection of taxes to the state budget or compliance with tax legislation by taxpayers. The dynamics of fiscal revenues and total revenues exceeds inflation estimated on the basis of the consumer price index (15%, for final goods), but is significantly lower than the index of production prices (50%, for intermediate goods, where as energy carriers, as well as types of fuel, which had a significant increase and close to this percentage in recent months).

That is, budget revenues fell in real terms, if compared with the producer price index. For this reason, inflation in the coming months is expected to exceed the current value, and the peak of inflation will be postponed to the end of the year, the beginning of next year.

It is no coincidence that since the middle of this year, the government has introduced tax increases – an increase in excise duties on energy carriers (not yet fuel) and tobacco products, the main sources of excise duty in tax revenues (about 95% of the total excise duty comes from these two sectors of activity), intending to also get additional amounts from excise taxes.

Tax collection for the state budget, especially in conditions of high inflation, faces the problem of fiscal compliance.

Will we have better tax compliance? How will these increased taxes, added to inflation, be collected?

To answer these questions, we need to understand the factors that influence tax compliance in this inflationary context.

Payment of taxes and, implicitly, their collection by the state depend on: the ease with which these taxes are paid, the level of taxation in relation to the general level of income (percentage of income from the total fiscal effort), the quality of public services, the method of collection of these taxes (directly from the payer taxes or indirectly, through third parties, usually private companies that sell goods and services to the public).

In Romania, the quality of public services remains a big problem

In Romania, the quality of public services remains a big problem, as less and less state budget revenues are spent on investments in such things. In addition, the still weak digitization of the tax system still poses great challenges for taxpayers, especially small ones, to easily declare and pay taxes and fees to the government.

In addition to these general factors (which explain compliance with all types of taxes), there are also specific or contextual factors. One of them is the amount of taxes in the final price at which the good or service is sold in the market.

For certain goods and for certain reasons, the amount of taxes in the final price is very high. We are talking about goods or services for which the demand is quite rigid in relation to the price (it does not decrease when the price is increased, including due to additional taxation) or goods for which the state shows excessive concern for consumer protection. Taxation on these items can be a significant portion of the final price.

For example, in the case of tobacco products, 15 out of 20 cigarettes in a pack are actually taxes paid by the purchaser of that product, and only 5 cigarettes represent the actual cost of that product (which includes everything, including the profit of the manufacturer and distributor). .

In fact, if we removed the tax on these products, the price would be much lower. Recently, these and other products have become important fiscal mechanisms, the final price of which is significantly burdened by various taxes (VAT, excise, etc.).

When the amount of taxation occupies a significant percentage of the final price (60-70% of this price), compliance with tax legislation suffers from two specific phenomena – smuggling and counterfeiting of original products. In order to keep the collection under control, the state should give additional importance to these two phenomena, which can significantly affect compliance with tax legislation.

Some products are more vulnerable to one of the phenomena (for example, fuel is more exposed to smuggling), others are more vulnerable to both phenomena (for example, tobacco products). That is why this phenomenon must be kept under control in order to avoid significant fiscal consequences not only for the budget, but also for other taxpayers who decide to be fair and follow the law.

From the data presented at the beginning of the article, it follows that large taxpayers are largely fair to the state and have a small debt to the state budget compared to the turnover they generate and their importance in the formation of GDP. This includes most of those whose final product prices are heavily taxed (energy, fuel, tobacco, alcohol).

The history of “solidarity” is important, but not enough if we want to talk about the modern state

In addition, here the demand is quite stiff compared to the price: according to the Ministry of Finance, it follows that in the first 6 months the excise tax increased by only 1%, that is, the consumption of excise goods did not decrease, even if the price of many of them increased significantly. In this case, not paying taxes because of the price is quite difficult. A significant increase in taxation may push the consumer to goods purchased by consumers “under the hood” of dubious quality.

That is, compliance with tax legislation and maintaining the appropriate level of tax collection for the budget in this case largely depends on keeping the phenomenon of smuggling and counterfeiting under control.

Although important steps have been taken in this regard, we still have difficulties in keeping both phenomena under control. In addition, the data show us that those who want to avoid the eye of the law manage to do so: it is estimated that about 300 rolls of cigarettes escape the vigilance of the authorities (contraband); recently in Romania, factories have appeared again, which counterfeit cigarettes and sell them on the market as original products (counterfeit). Similar situations also exist with alcohol and fuel, less so with gas and energy.

As long as these phenomena remain in the market, tax compliance will be problematic. The state must make significant efforts in all directions in order to manage to maintain the appropriate level of tax revenues from tax revenues to the budget. The history of “solidarity” is important, but not enough if we want to talk about the modern state. It is necessary that there should be more than enough from the taxes paid to the budget. Especially in a rather poor country, where every penny counts more than elsewhere.