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Romania considers changing its tax system

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© Reuters. Romania’s Prime Minister Nicolae Ciuca speaks to the media during a meeting of Southeastern European NATO member states, as Russia’s invasion of Ukraine continues, in Sofia, Bulgaria, March 28, 2022. REUTERS/Stoyan Nenov/File Photo

BUCHAREST (Reuters) – Romania is considering changing its tax system, Prime Minister Nicolae Ciuca said on Wednesday in a surprise announcement, and his leftist coalition partners said they wanted to replace the current flat income tax rate with a progressive one.

Ciuca’s centrist Liberals introduced a flat tax of 16% on income and profit in 2005, boosting budget revenue in the European Union country, which is plagued by vague legislation, bureaucracy and corruption.

The Social Democrats, the largest part in the ruling coalition, have advocated for progressive taxation for years.

Ciuca said the government has no plans to change taxes this year, but that it had asked the finance minister to present proposals for potential future changes within two weeks.

“We cannot talk about overnight (changes to) taxes,” Ciuca said.

The country collected budget revenue worth just under 32% of gross domestic product last year, significantly below the EU average of roughly 46% of GDP. Most of its revenue is spent on public sector wages, pensions and subsidies.

The business sector in Romania is wary of changes to the operating environment after previous sudden non-transparent moves approved without consultation.

Earlier this month, the central bank warned that Romania’s fiscal deficit and its low revenue collection were major risks to economic stability.

“No decision has been made, but it is normal for a coalition to discuss such things and have … different points of view,” Social Democrat leader and lower house speaker Marcel Ciolacu told reporters.

“Changes to the fiscal code are obviously necessary.”

Romania considers changing its tax system

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