Romania: Technical Assistance Report on Reforming Personal Income Taxation

International Monetary Fund

No 2022/199, IMF Staff Country Reports from International Monetary Fund

Abstract: This paper describes Romania’s Technical Assistance report on reforming personal income taxation. With one of the lowest revenues in the EU and a projected budget deficit exceeding 7 percent of gross domestic product (GDP), Romania should rely on an array of tax instruments to mobilize revenues. The personal income tax (PIT) plays an integral role in the overall reform to balance revenue, efficiency, and distribution considerations. The PIT should be reformed to support revenue and reduce inequality. It is recommended to introduce a new employment income bracket with a moderate top PIT rate, for example of 20 percent. A combination of 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. The taxation of the self-employed and microenterprises should be strengthened to close revenue leakages and safeguard the integrity of the tax system. Freelancers are recommended to pay social security contributions on their total net income, possibly up to a cap.

Keywords: personal income taxation; request of Ministry of Finance; PIT rate; PIT exemption; revenue ratio; reform scenario; Personal income tax; Tax allowances; Marginal effective tax rate; Income; Income tax systems; Eastern Europe; Global; discussions with the Ministry of Finance (search for similar items in EconPapers)
Pages: 38
Date: 2022-06-29
New Economics Papers: this item is included in nep-acc, nep-pbe and nep-pub
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