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

On 30 June 2022, the Ministry of Finance of Romania signed with the World Bank Group the Reimbursable Advisory Services (RAS) Agreement P178899 on “Improving the Tax Framework in Romania, in the context of the National Recovery and Resilience Plan” (hereinafter referred to as the “RAS agreement between the Ministry of Finance and the World Bank”). The RAS agreement between the Ministry of Finance and the World bank was signed for the purpose of providing technical assistance to the Ministry of Finance for the review of the tax framework. Additionally, Component 1 of the RAS agreement between the Ministry of Finance and the World Bank is titled “Review of the current tax system and provision of recommendations to promote and preserve sustainable economic growth”, setting out obligations for the World Bank to conducting a comprehensive review of the current tax system in Romania, including benchmarking against the tax systems adopted in other relevant and comparable European countries and assessing the Romanian tax system in relation to standard principles of good tax policy, and developing reform

recommendations. The provision of analysis and recommendations by the World Bank therefore constitutes advisory and consultancy services.

Furthermore, the World Bank report “Report on the tax system in Romania, including benchmarking and recommendations to inform Client’s reform of the tax framework” was delivered to the Minister of Finance of Romania in March 2023, constituting Deliverable 1 of the RAS Agreement between the Ministry of Finance and the World Bank. As outlined in the table of contents, the report provides an assessment of Romania’s tax system, including its current structure and legislation on labour, capital income, immovable property, corporate income, small businesses, energy and value-added taxation, providing an analysis and reform options on how to improve it. As stated on page 8 of the World Bank report, the proposed reforms aim to ensure that Romania’s tax system contributes to promote and preserve sustainable economic growth.

The focus shall be:

• - on the gradual phase out of the tax incentives and loopholes in income tax, corporate tax

(including special schemes which may benefit from the exceptions) Sections 3.1, 3.4 and 3.5 of the World Bank report present analyses on the taxation of labour income, corporate income and small business taxation respectively. Section 4 provides detailed policy recommendations, which include the simplification and reassessment of tax incentives and the removal of income tax exemptions for workers in agriculture, construction and IT sectors, as well as the special regime for microenterprises. Section 4 also presents a proposed timeline for the implementation of reforms, which would take place gradually until 2028.

• - on social contributions and property tax (i.e. local taxes)

Sections 3.1 and 3.3 of the World Bank report present analyses on social security contributions (page 20), health contributions (pages 30-31) and property taxes, which are local taxes, (chapter 3.3.1). Section 4 provides detailed policy recommendations, which include health contributions (page 76) and property tax (pages 78-79).

• - on shifting taxation towards green taxes, taking into account distributional impacts.

Section 3.6 of the World Bank report presents an analysis on energy taxation. Section 4 provides detailed policy recommendations, which include energy taxation and cover recommendations on shifting taxation towards green taxes (e.g., by more effectively pricing emissions and providing greater neutrality across fuel types) (pages 80-82). Appendix 4 of the World Bank report presents a methodology for the distributional analysis of climate mitigation policies in carbon pricing.

The analysis and recommendations shall be published by the Ministry of Finance The report containing the analysis and recommendations is publicly available on the website of the Ministry of Finance. The website where the report was published was accessed and checked by