Romania’s Ongoing Struggle to Collect VAT Proceeds
By: The Quinnipiac University Economics Research Team, Cameron Davignon
Like many regions, the European Union has taken large economic blows to both its public and private sectors as a result of COVID-19. Romania specifically has been experiencing an unsustainably poor value-added tax (VAT) collection rate of approximately 67% per year. This marks a stubborn continuation of a problem the country had already been facing prior to the pandemic. VAT is a tax levied on goods at every point in the production and fulfillment processes and is immensely important to the country. It’s known to contribute largely to government revenues in the European Union, yet the economic indicator comparing total accumulated VAT in its economy to total collected VAT does not signal a favorable situation for Romania. The country also has a reported RON (Romanian leu) 50 billion spending deficit through July of this year compared to a RON 18 billion deficit at the same point a year ago.
Since the end consumer pays the VAT of any given product in its total purchase price, the government itself is responsible for assuring it’s collected from the sellers to which it’s initially paid. The tax funds much of Romania’s own operations and spending. This has been an issue because, despite efforts to revitalize the systems, Romania has consistently under-collected taxes compared to their EU counterparts. With tax collection amounting to roughly 26% of total GDP in recent years, Romania sits second to last in the EU in that regard. Collecting a greater amount of VAT revenues would improve the country’s situation considerably. The Romanian economy is likely to continue to exhibit these downtrodden effects into the near future or longer.
This article is based on: https://business-review.eu/money/finance/romania-misses-out-on-33-of-vat-revenues-due-eu-states-can-no-longer-afford-such-losses-warns-the-european-commission-does-poland-hold-the-answer-213435