Romania goes up among top tax reformers in CEE, online tax payment further needed

Long time criticized for its bureaucracy and for the sluggish tax system, Romania managed to implement some measures which moved the country up 18 slots in the Paying Taxes 2013 report from the World Bank, IFC and PwC. The introduction of the single declaration for social contributions and the mandatory filling of tax declarations by large and medium sized enterprises played a big part in Romania going up the ranking. This was the third biggest improvement reported by a country from CEE last year, after Slovakia and Slovenia. Meanwhile, other CEE countries actually reported a downgrading in the global rankings last year. But Romania still has a long way up, and online tax payments will further improve its position in the ranking. The Paying Taxes 2013 study looks at tax regimes in 185 countries and measures the ease of paying taxes by taking into account a case study medium sized enterprise, with the same activity, same number of employees and same turnover in all countries measured. “We have seen Romania making notable progress in the past year in terms of easing the paying taxes process. The introduction of online mechanisms has slashed the number of payments that an average enterprise needs to perform from 113 to 41. Take for example labor related payments. From 84 it has been reduced to only 12 yearly, after the introduction of the single tax return for social contributions. Also, the time to comply was also slightly reduced from 222 hours annually to 216 hours”, stated Peter de Ruiter, Tax and Legal Services Leader, PwC Romania. Romania stands slightly below the CEE average in terms of Total tax rate (44.2 percent, as opposed to the CEE average of 44.6 percent), while scoring significantly better than average in terms of time to comply (216 hours as opposed to the CEE average of 263 hours). The number of payments is however still higher than the CEE average - 41 payments compared to an average of 15. “There is also room to slash the number of payments even further, by scrapping payments other than those required for corporate income tax and labour taxes. In terms of reducing the total tax rate, we see potential for reducing social contributions as these have the largest impact on the company’s tax position. This easing of labour taxation could boost job creation and, as we all know, the paradox of taxation is that sometimes lower tax rates lead actually to an increase in tax revenues provided collection improves and tax evasion is narrowed down”, added de Ruiter. The report looks at three main indicators: the total tax rate, the time to comply, the number of hours needed for a medium-sized company to comply with the tax regulations imposed in its country, and the number of payments needed. Globally, a medium company pays on average a total tax rate of 44.7 percent of its profits, making 27.2 payments, and spending 267 hours to comply with its tax requirements.