Preliminary assessment of the third payment request of Romania (2024)

independent institutions providing technical assistance Context:

Milestone #205 is part of reform C8.R4, which has the objective to review the tax framework to allow Romania to improve competitiveness, while supporting fiscal sustainability and environmental goals. Through this reform the tax system should become fairer, more efficient, simpler and more transparent thereby capable of better supporting the economy and facilitating taxpayers’ compliance.

Milestone #205 requires a comprehensive analysis of Romania’s tax system and recommendation to ensure that the tax system contributes to promote and preserves sustainable economic growth. The review has to identify distortions and adjustment needs, in particular for corporate income tax, income tax and social security contributions as well as property taxation. The analysis should inform decisions for a gradual withdrawal of excessive tax incentives, but also aim at expanding green taxation.

Milestone #205 is the first step of the implementation of the reform, and it is accompanied by milestone #206 in this payment request, which covers the entry into force of amendments to the Fiscal Code gradually reducing the scope of the special tax regime for micro-enterprises. Milestone #205 will be followed by milestone #207, related to the entry into force of i) amendments to the Fiscal Code (Law No. 227/2015), to reduce and/or eliminate other tax incentives with the objective to simplify the tax system, make it more effective, transparent and fair by 2024; and ii) legislation to expand the green taxation. Milestone #205 will also be followed by milestone #208, which is related to the entry into force of amendments to the Fiscal Code (Law No. 227/2015) gradually reducing tax incentives for personnel employed in the construction sector.

The reform has a final expected date for implementation on 31 March 2025.

Evidence provided:

The following evidence was provided:
   i.    Summary document duly justifying how the milestone (including all the constitutive
         elements) was satisfactorily fulfilled;
  ii.    Copy of the report prepared by the World Bank titled “Report on the tax system in Romania,
         including benchmarking and recommendations to inform Client’s reform of the tax
         framework”, deliverable 1 of the Reimbursable Advisory Services Agreement between
         Romania and the World Bank titled “Improving the Tax Framework in Romania in the
         context of the National Recovery and Resilience Plan (P178899)” (hereinafter referred to as
         “the World Bank report”);
 iii.    Link to the publication of the World Bank report on the website of the Ministry of Finance:
         https://mfinante.gov.ro/documents/35673/8180698/ReformingthetaxsysteminRomania_B
         M.pdf

Analysis:

The justifications and substantiating evidence provided by the Romanian authorities cover all constitutive elements of the milestone. Specifically:

The Ministry of Finance shall, with support of technical assistance, advisory and consultancy services, carry out the analysis on how to improve the structure of the Romanian tax system/tax legislation to ensure that the tax system contributes to promoting and preserving sustainable economic growth.