“Dimitrie Cantemir” Christian University

Knowledge Horizons - Economics

Volume 5, No. 4, pp. 106–110
P-ISSN: 2069-0932, E-ISSN: 2066-1061
© 2013 Pro Universitaria
www.orizonturi.ucdc.ro

The Fiscal Pressure in Romania in the Context of Economic Crisis

Daniela PENU1, Diana Mihaela APOSTOL2, Cristina BĂLĂCEANU3

1,2Faculty of Finance, Banking and Accountancy, “Dimitrie Cantemir” Christian University, Bucharest, 1E-mail: penudaniela@yahoo.com, 2E-mail:

altai78@yahoo.com,
3 Faculty of Marketing, “Dimitrie Cantemir” Christian University, Bucharest, Romania, 3E-mail: movitea@yahoo.com

Abstract Starting from 2008 the effects of the economic crisis are being also felt in our country. Under these Key words:
circumstances Romania had to take a series of fiscal measures which were aimed at reducing the Value added tax, excise
budgetary deficit. These measures were aimed on the one hand to increase taxation, to reduce the duties, personal income,
tax evasion and to improve the revenue collection system and on the other hand to reduce budgetary corporate income, social
expenditures. In this paper we propose an analysis of the tax burden in Romania regarding both the contributions
indirect taxation and the direct taxation. JEL Codes:
G18

1. Introduction program with Community rules, an increased RON/EUR

Given the unfavorable economic situation, in 2010,
following the discussions with the International
Monetary Fund, the European Union and the World
Bank, the government had to choose between two
alternatives (Press Statement by President Traian
Băsescu, May 6th 2010). The first option considers:
- an increase in value added tax from 19% to 24%;
- rising the flat tax from 16% to 20%;
- making a reduction in the public sector wages by 20%.
The second option was the adoption by the government
of certain measures to reduce the budgetary
expenditures aimed mainly to reduce the budgetary
personnel expenditures (they were 9.4% of GDP, which
meant 28% of the budget) and the social expenditures,
including pensions (which accounted for 12% of the
GDP – above 35% of the budget), which together
amounted to 63% of the budget. Since the average
income into the budget was 31% of GDP, and state
budget expenditures were approximately 40%, in order
to cover the difference it was necessary to restructure
the public and the social sector expenditures (Penu, D.,
2011). The result was the adoption in July 2010 of an
austerity program by which has been established:
increasing the share of value added tax from 19% to
24%, reducing the public sector wages by 25% and the
majority of social services by 15 %, a further reduction
of the number of employees from the public sector. To
these measures were added: the high level of social
security contributions, an increase level of excise duties
for some products, according to the harmonization
used in calculating the excise duty which led to an
increased fiscal burden both on the indirect and direct
taxes.
2. The fiscal pressure in the field of indirect
taxes
In 2007, with Romania's accession to the European
Union, there were increases in the level of excise duties
for a number of products. Thus the excise duty on
leaded petrol has increased by about 14%, the excise
duty for the electricity used for commercial purposes
increased with 85.7% while the one for non-commercial
electricity use increased by 73.3%, for fuel oil - by
90.89%, for natural gas used as motor fuel with
63.52%. (Penu, D., 2011) This led to higher prices
which were reflected in the volume of revenues (3.2%
of GDP). The unfavorable development of the economic
activity in 2008 has led to a reduction in revenue: VAT
revenues represented 8% of the GDP, while excise
revenues decreased by 23% compared to 2007 due to
the continuum increasing on their level. The excise duty
on cigarettes grew by 20.48%, the one for diesel with
5.66%, for fuel oil for commercial purposes - 5.38% and
for commercial electricity with 30.76%. (Penu, D. 2011).
Given the effects of the economic crisis, which led to a
decrease in the economic activity in certain sectors of
activity, there is a reduction of VAT revenues from 8%
in 2008 to 6.8% in 2009. In 2009, although the level of
excise duty increases, we find that the share of
revenues from excise to gross domestic product grew
Knowledge Horizons - Economics
Volume 5, No. 4, pp. 106–110, © 2013 Pro Universitaria

by 19.23% compared to 2008, which may be explained 14

through an improved process of collection of excise 12,7
12
duty by NAFA (Penu, D., 2011). In July 2010, the VAT 11,7 11,8
11
11,6

rate has increased from 19% to 24%. This has had as 10 10,3
8,7
8,3 9
effect the increase of the revenues collected from VAT 8
8 8 7,7
6,8
by 13.23%. Along with this increase, in the field of value 6
6
added tax were taken a series of fiscal measures,
aimed at reducing the tax evasion (Report on the 4 3,2 3,2 3,1 3,4 3,5
2,6 2,5
macroeconomic situation in 2011 and the projection for 2
2012-2014): establishment of a register of intra-
0
Community operators, measure introduced in order to 2006 2007 2008 2009 2010 2011 2012
reduce the tax evasion in intra-Community transactions
by GEO no. 54/2010 regarding some measures to VAT Excise duties Indirect taxes

combat tax evasion; setting the legal framework for the
application of the reverse charge for the deliveries of
goods which fall into the category of those at high risk
of fraud; the transposition of art. 3 of Council Directive
2008/8/EC amending Directive 2006/112/EC on the
common system of VAT, changes being primarily
technical; the Directive 2010/23/CE of the Council
amending the Directive 2006/112 / EC on the common
system of VAT on operational and temporary
application of the reverse charge mechanism for
supplies of certain services susceptible to fraud.
The year 2010 brought new changes in the level of fuel
excise duties, the excise duty on unleaded petrol and
diesel increasing by 3.66%, and for fuel oil used
commercially - by 4.16%. It also took place a new
increase in the excise duties on cigarettes by 15.62%.
(Penu, D., 2011) This was reflected in an increase in
revenues from excise duties by 9.67% over 2009. The
fiscal measures adopted, but also the recovery in
economic activity led to increases in revenue to 8.7%
for VAT and 3.4% for excise duties.
Since 1 January 2012 the excise duty on diesel has
increased from 358 euro/tonne to 374 euros/tonne, and
from July 1 2012, the minimum excise duty on
cigarettes increased from 74 Euro/1000 cigarettes at
76.50 Euro/1000 cigarettes and the total excise duty on
cigarettes increased from 76.60 euro/1000 cigarettes to
79.19 euro/1000 cigarettes. In the case of the coffee
varieties, it remained at the applied rate of excise duties
from 2011, i.e. the green coffee - 153 euro/tonne, for
roasted coffee, including substitutes - 225 euro/tonne,
and for instant coffee - 900 euro / ton. This will result in
an increase in excise duties to 3.4%, according to the
Fiscal- Budgetary Strategy 2013-2015.
Source: Consolidated General Budget 2006-2013
Figure 1. The evolution of indirect taxes in Romania in
the 2006 - 30/09/2012 period
For the period 2014-2016, the following objectives are
to be considered (The Fiscal-Budgetary Strategy 2014-
2016):
- Continuous improvement of the legislation to meet the
criteria for harmonization with the EU legislation, by
transposition into national law of the Directives adopted
at European level in the field of VAT;
- Improving the VAT legislation according to the fraud
phenomena in order to counter them;
- Gradual reduction over the next four years of the
value added tax, as the budgetary revenue collection is
improving;
- Keeping the schedule for gradual increase in excise
duties on cigarettes set out in the Annex no. 6 of the
Title VII of the Act nr.571/2003 on the Tax Code, as
amended and supplemented in accordance with the
requirements of Directive 2011/64/EU on the structure
and rates of excise duty applied on manufactured
tobacco.
- Compliance with the commitments undertaken by
Romania through the Letter of Intent to the IMF, namely
the implementation of measures to increase the
revenues collected from excise duties, in particular by
reducing the evasion in the area of excise duty on
alcoholic beverages, and a better correlation of excise
duties with the content of alcohol and the production
process;
- Transposition into the national law of the Directives
adopted by the European Commission in the field of
excise duties within the terms referred to in those
Directives.

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 Knowledge Horizons - Economics
Volume 5, No. 4, pp. 106–110, © 2013 Pro Universitaria

3. The fiscal pressure in the field of direct taxes And in the case of the corporate income, the tax base
was broadened, e.g.: the introduction of new fiscal rules
8
for the taxpayers who apply the International Financial
7
6,7
6,4
Reporting Standards; the limited deduction, in
6,3
6
5,7 5,7
5,5
proportion of 50%, of the costs with the fuel for the
5 motorized road vehicles that are intended solely for the
4 3,7 3,6 3,7 3,5 3,5 4 transport of persons (Budget Report 2012).
3
2,9
2,4
2,7 2,5 2,4
2,6 In 2008, according to Article no. 18, paragraph 2 and
2
2 1,9 paragraph 3 of Law no. 19/2000, the following rates
1,3
1
were applied for the social security contributions: for the
normal working conditions: 29%, for difficult working
0
2006 2007 2008 2009 2010 2011 2012 conditions: 34%, and for special working conditions:
Personal income Corporate income Direct taxes
39%. According to Article no. 21, paragraph 2 of Law
no. 19/2000, individual social security contribution rate
Source: Consolidated General Budget 2006-2013 was 9.5%. Starting from this year the share of individual
social security contribution also included the 2% related
Figure 2. The evolution of direct taxes in Romania in to private pension funds. To these private pension fund
the 2006 - 30/09/2012 period had to attend all the persons aged under 35 years who
became for the first time compulsory insured and which
The economic crisis has severely affected the activity of contributed to the public pension system (Law
the economic agents, reflected in lower collections from 411/2004, art. 30, paragraph 1), but also people up to
the corporate income. If in 2008 the volume of 45 years who were already insured and contributed to
corporate income revenues represented 2.5% of the the public pension system (Law 411/2004, art. 30,
GDP, in 2011 it was only 1.9%. The reduction in the paragraph 2).
economic activity and the rising unemployment has This fact is observed in the slight decline in revenues
affected the personal income collection, from 3.7% in from social security contributions: from 9.9% to 9.4%.
2009 to 3.5% of GDP in 2011. In 2012 it was decided to Starting with 2010, the share of private pension
increase the tax base for the revenues, e.g.: the contributions was increased by 0.5 percentage points
inclusion into the revenues from rental and leasing annually (Law 411/2004, art. 43, paragraph 2). Given
category of the incomes received by the owner from the economic situation, in 2009 was necessary to
renting for tourism the rooms located in private housing increase the rates for the social security contributions:
with an accommodation capacity of between 1 and 5 for the normal working conditions the rate was set at
rooms, including; the taxpayers with incomes from 31.3%, for difficult working conditions: 36.3% and for
independent activities and which recorded in the special working conditions: 41.3%. Individual insurance
previous fiscal year an annual gross income higher than contribution rate was 10.5%, of which 2% for the private
the equivalent in RON of EUR 100,000, will determine pension fund. The number of unemployed persons also
the annual net income in real system (Budget Report increased, the unemployment rate reaching 6.9%, an
2012). increase of 1.1 percentage points over the previous
10
year.
9 9,8
9,9
9,4 9,5
In these circumstances, the amount of social security
9,2
8 8,9 contributions revenues have increased only by 0.1%
7
compared to 2008. Under the conditions of rising
6
5
6,3 unemployment, which reached 7.3% in 2010, and of
4 maintaining the level of social insurance contributions,
3 the amount of social security contributions revenues
2 decreased by 0.6% compared to 2009. The economic
1
0
recovery, the moderate evolution of average gross
2006 2007 2008 2009 2010 2011 2012 wage per economy was reflected in an increase in
Social Security Contributions revenues from social security contributions by 0.3%.
Also, this year the application basis of the contribution
Source: Consolidated General Budget 2006-2013 rate of health insurance was extended for the
pensioners whose pension was more than RON 740
Figure 3. The evolution of social security contributions per month.
in Romania in the 2006 - 30/09/2012 period

108
Knowledge Horizons - Economics
Volume 5, No. 4, pp. 106–110, © 2013 Pro Universitaria

70 2500
- The medium term, attracting a high volume of foreign
58,8 58,8 59 58,6 58,8 58,5 investments, and long-term - supporting the local
60
2000 capital.
50
1845
1902 1980
In the period 2013-2015 is expected a recovery in
1761
40 1396
1500
economic activity that will have positive effects on the
30
1146
1000
consolidated budget revenues. An increase to 3.6% in
20
income tax is expected, a trend which will be possible
500 due to the moderate growth of the average gross
10 7,3 6,4 5,8 6,9 7,3 7,4
income, but also to the fiscal measures taken to
0 0 improve the process of collecting them. These fiscal
2006 2007 2008 2009 2010 2011
measures will be reflected in increased revenues
Unemployment rate Employment rate Average gross monthly earnings
collected from VAT, where it is expected a value of
Source: National Institute of Statistics, Romania 8.4%, a 3.4% value in excise tax revenues, and in
social security contributions - 8.7%.
Figure 4. The evolution of the unemployment rate, the Compared with the Member States of the European
employment rate and average gross monthly earnings Union, in 2011 in Romania the fiscal pressure did not
in Romania in the period 2006 - 2011 register high levels. Total taxes were 28.2% in GDP, as
opposed to Denmark with 47.7%, the average
In the medium term, 2014-2016, the following (weighted) EU-27 being 38.8%. Romania has a high
objectives are taken into account in the field of direct level of taxation on indirect taxes, being ranked the
taxation (The Fiscal-Budgetary Strategy 2014-2016): 16th, with 13.2% of GDP, close to the EU27 average of
- The simplification of the amortization scheme of fixed 13.4%. A significant proportion has the VAT revenues
assets; (8.7%) placing Romania in the 5th place, while excise
- To design the Strategies to the new tax regime in the duties revenues encounter for 3.5% (the 9th place
field of oil and natural gas in the period 2015-2024; between EU Member States). The situation is reversed
- The transposition/implementation into national law of in the case of direct taxes, revenues accounting for only
the provisions which will be brought to EU law in the 6% of GDP (24th among EU Member States), the EU
field; 27 average being of 12.9%.
- The directive on the common consolidated tax base;
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Volume 5, No. 4, pp. 106–110, © 2013 Pro Universitaria

the Official Journal of Romania, 1st Part, no. 901 of 31

December 2007
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110