This is one of the slowest six-month periods in terms of budget revenue collection in four years.
“If we analyze the tax revenue, without adding the tax increases in the last few years and the temporary measures, we can see a decline of the budget revenue as a percentage of the GDP, which is largely because of an increase in tax evasion,” says Ionut Dumitru, chairman of the Fiscal Council. He estimates tax evasion to stand at 16% of GDP.
Total budget revenue reached 100.4 billion lei (EUR23 billion) in the first quarter, merely 15.2% of GDP. Total revenue stood at 15.5% of GDP in the first half of 2013, while in the first half of 2011, it was close to 16%. Tax revenue amounted to RON60.9 billion at the end of June (9.2% of GDP).
“Collection of budget revenue was poor in the first half, as tax revenue was about RON1.8 billion to RON2 billion lower than scheduled. If we include the EU funds, the difference is even greater, more than RON3.5 billion. Collection cannot catch up with the economic growth trend.”
Last year, the Finance Ministry collected only one billion lei after the two waves of tax changes, even though it had set out to get over RON3 billion more from the private sector, according to the tax authority ANAF.
Total consolidated budget revenue fell to 31.8% of GDP in 2013, marking one of the slowest years in terms of budget revenue collection in the past decade. Last year can only compare to the crisis year 2009.
The Finance Ministry should get about RON1.4 billion from the special building tax this year, triple as much as it had set out to.
The Fiscal Council believes that the higher revenue from the special building tax has already been offset by the delay in the implementation of the additional fuel excise duty and by the decision to give back part of it to the major carriers. The cumulated budgetary impact thereof is RON923 million.
VAT and income tax saw the lowest collection degree in the first half, the Fiscal Council’s Ionut Dumitru says.
Retail sales rose by 8.2% in volume in the first five months, while VAT revenue only increased by 1.4% or 1.9% in the first half compared with the year-ago period.
Income tax revenue rose by just 0.6% in the first half compared with a scheduled increase of 5.6% for the entire 2014, considering the average wage went up 4.8% in the first five months and the number of employees was 0.8% higher on average compared with the year-ago period. While income tax revenue increased by a mere 0.6%, social security tax revenue went up 5.6% (compared with an about 6.3% growth projected for the entire 2014).
The two categories, income tax and social security tax, should be coordinated and there is no reasonable explanation for the low income tax collection, Dumitru says.
“When we’re talking about cutting labor taxation, which is absolutely necessary to stimulate economy, we must find solutions to address the underlying issue here, i.e. improvement of revenue collection. Otherwise, we’ll be stuck in a vicious circle wherein in the absence of an improvement in collection a tax cut leads to the need to raise other taxes to offset the negative impact on the budget. Without a zero tolerance policy for tax evasion and a profound restructuring of ANAF, I don’t think the problem can be fixed,” the chairman of the Fiscal Council says.
(English version by Loredana Fratila-Cristescu)