Tax Compliance in Romania

Investment Rating - The report does not explicitly provide an investment rating for the industry. Core Insights - The study assesses tax compliance and underreporting of labor income in Romania, particularly among minimum wage workers, highlighting the links between tax compliance and minimum wage policy [3][7][12] - The average underreporting of income in Romania is estimated at 6%, with significant underreporting observed in the lower half of the income distribution [3][46] - Tax compliance varies across different sectors, regions, and demographic groups, with transport, construction, and food and accommodation sectors showing the lowest compliance rates [3][12] - Women exhibit higher tax compliance compared to men [3] - The underreporting of income negatively impacts the fiscal capacity of the country and the effectiveness of means-tested social assistance programs [3][12] Summary by Sections Introduction - The report aims to evaluate tax compliance and underreporting of income in Romania, focusing on minimum wage earners and the implications for tax policy and equity [7][8] Methodology and Data - The study employs statistical matching techniques to compare tax returns with survey data, utilizing administrative tax records and EU-SILC data to assess tax compliance [16][21][30] - The analysis includes a comprehensive review of various methods to estimate tax evasion, highlighting the challenges of data integration and the importance of accurate income reporting [16][17][21] Results - The findings indicate that tax-reported income at the median is only 90% of the true income, with significant discrepancies noted at lower income percentiles [3][46] - The mean tax income is reported to be 1.2% lower than the mean survey income, while the imputed tax income is 6.6% higher than the mean survey income [43][44] - The report emphasizes the need for improved tax compliance mechanisms to enhance fiscal sustainability and social equity [10][12] Conclusion - The study concludes that addressing tax evasion is crucial for improving the effectiveness of the tax system and promoting greater income equality in Romania [10][12]