Romania should accelerate tax reforms to boost budget revenues, including measures previously rejected by authorities, the Organisation for Economic Co-operation and Development (OECD) said in a recent report.

The OECD acknowledged progress made over the past year in broadening the tax base, but said the system remains unbalanced, with labour taxed more heavily than capital and property remaining undertaxed. Differences between employees and self-employed individuals also create significant inequities.

The report recommends more ambitious reforms, including higher taxes on dividends, property, and capital income, as well as the elimination of tax breaks and reduced VAT rates. While Romania maintains a flat income tax rate of 10%, one of the simplest systems in the OECD, the organisation said this comes at the cost of limited redistribution and distortions between income categories.

Romania has already taken steps to address exemptions, removing tax breaks in 2025 for sectors such as IT, construction, agriculture, and the food industry, which together accounted for around 20% of employees. The OECD also welcomed the introduction of a 10% health contribution (CASS) on pensions above RON 3,000, but described it as a temporary measure and recommended making it permanent.

A key concern highlighted in the report is the disparity between employees and self-employed workers. While employees pay full social contributions based on actual income, self-employed individuals benefit from contribution caps, particularly at higher income levels. According to the OECD, this creates inequities, encourages tax optimisation, and reduces budget revenues. It recommends eliminating or significantly increasing these caps, especially for health contributions, noting that Romania has one of the highest levels of “false self-employment” in the EU.

The organisation also pointed to structural imbalances between labour and capital taxation. Income from dividends, rents, interest, and capital gains is typically taxed at lower rates than wages, limiting redistribution and encouraging income reclassification. While Romania plans to raise the dividend tax from 10% to 16% in 2026, the OECD said further steps are needed.

These include aligning taxation of other capital income to similar levels, reducing the 40% flat-rate deduction for rental income, and introducing a tax on gains from residential property sales, with exemptions for primary residences.

iulian@romania-insider.com

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