Tax compliance remains limited, while fiscal policy is rather unstable, reads the European Commission’s Country Report Romania for 2015.

Value added tax (VAT) compliance is among the lowest in the EU and undeclared work affects budget revenues, although the Romanian state has been trying to implement measures to increase the efficiency of the tax administration.

The Government’s recent cut of the employers' social security contributions by five percentage points (as of October 2014) should yield a net tax revenue loss of around 0.75 % of GDP for 2015.

“The failure to target the reduction of the tax wedge for low and middle-income earners resulted in this significant revenue loss. Budget neutrality is intended to be ensured mainly via expenditure cuts in the 2015 budget and for the fourth quarter of 2014. The sustainability of this approach remains to be verified in the course of 2015,” reads the report.

The full report is available here.

editor@romania-insider.com