The reform proposals transmitted by the IMF: unique 15 and 25%quotas, tax pensions, reduced VAT rates increased to standard level
The IMF headquarters in Washington, Photo: Mandel Ngan / AFP / Profimedia
The technical assistance from the IMF proposes a package of fiscal reform aimed at mobilizing income, while improving incentives for work, remaining attractive for capital investments and eliminating fiscal gaps for abusive fiscal planning. The key recommendations move the tax burden from labor taxation (including social insurance contributions) to consumption taxes and, to a lesser extent, on capital. Detailed recommendations, if they are fully implemented, can generate revenues of at least 1.2% of GDP in 2025.
The technical assistance granted by the IMF Romania has offered as a key recommendation to reform the fiscal system, in order to transfer the tax burden from the taxation (including social contributions) to consumption taxes and, to a lesser extent, on capital.
Detailed recommendations, if fully implemented, can generate revenues of at least 1.2% of GDP in 2025.
A. Labor taxation
The transition from a unique tax rate tax rate of 10% to a system with two marginal taxes, 15% and 25%, the latter being applicable to the highest revenues (90 income percentage).
In order to reduce the fiscal load related to the work for most taxpayers, the contribution to health insurance should be significantly reduced or eliminated. If the fiscal space allows, the fiscal load related to the work in low incomes should be addressed by a more generous allowance or by introducing a benefit program according to the workplace. Pension contributions should either be non -deductible or pension revenues should be taxed.
B. Taxation of capital income and properties
Taxes on dividends distributed to individuals should be increased from the current level of 8% to 10%, this being the rate of tax on interest income. This would increase income, reduce tax arbitration opportunities and improve progressivity.
The main recommendations for property tax are to unite the land and buildings tax in a single tax and to reduce exemptions, while offering tax exemptions for vulnerable groups in other forms.
Taxing of business profits can be improved by eliminating fiscal credit for corporate sponsorships and replacing tax exemption for reinvested profits with a tax loan of up to 50% for eligible investments, capped to 10% of profit tax obligations.
The fiscal stimulant for research and development should be restructured as a repayable tax loan. Finally, the threshold of turnover for the micro -enterprises regime should be substantially reduced from the current level of 500,000 EUR, preferably by harmonizing it with the VAT registration threshold (88,500 EUR).
C. Consumer charges
In order to increase the income and create tax space to reduce the contribution rate for medical assistance, reduced VAT quotas should be increased to the standard share, except for basic foods – growth could be staggered over time to alleviate its impact on consumer prices.
In addition, the standard share should be increased from 19% to at least 20% in 2025 and later 21%-near the EU-27 average of 22%. Excise duties adjusted to inflation to tobacco and alcohol should be increased, and the excise duty in wines should be unified at about 60 RON/HL (at current prices).
Exclusions adjusted to inflation to fossil fuels should be gradually increased to their optimal levels.
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