Romania wants to increase budget revenues by cutting its VAT gap

The reforms, measures, and investments proposed by Romania's National Agency for Fiscal Administration (ANAF) aim to increase the tax revenues to GDP ratio by 2.5 percentage points until the end of 2024, by reducing the VAT gap, according to the ANAF Strategy for the next three years.

The target is not clearly stated in the document. ANAF mentions reducing the VAT gap by "up to 10% in the period 2021-2024 compared to 2020."

However, this would be a modest target that wouldn't contribute very much to the goal of increasing tax revenues by 2.5% of GDP.

Cutting the VAT gap by 10pp would be a more ambitious target that would significantly improve the country's financial resources and bring it closer to the EU average.

Romania posted the highest national relative VAT gap in the European Union (EU) in 2018, failing to collect 33.8% of its potential VAT revenues, according to the European Commission's VAT Gap 2020 Report.

In absolute terms, Romania failed to collect EUR 6.6 bln, or 3.3% of its GDP, nearly five times more than the EU average.

Regarding the total budget revenues to GDP ratio, the Government envisages - according to the medium-term fiscal strategy - a one-off rise this year to 32.7% (from 31% in 2020) as firms are expected to pay the dues deferred through the tax moratorium in 2020, Ziarul Financiar reported. However, the ratio is then expected to decline to under 31% (30.8%) in 2024, probably amid robust nominal GDP growth.

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