Vice-president of the Romanian Social Democratic Party (PSD), Sorin Grindeanu, in a column published by Ziarul Financiar daily on November 15, advocates for “a reset” of the taxation system, which is in deep need of revenues as it is plagued by low tax rates and multiple exceptions.

The Social Democrats, which may turn into the senior ruling partner either by negotiations or after snap elections in Romania, are increasingly advocating against the incumbent so-called “flat tax rate system” and are sketching a new taxation system based on progressive taxation of income and wealth (luxury taxation) and possibly higher corporate tax rate, as a means to achieve the same level of revenues (in terms of % of GDP) as the developed European Union member states.

The so-called flat tax rate is currently an “exotic” feature among EU states, which in exchange use progressive taxation and relatively high corporate tax rates to finance quality public services. Grindeanu argues that only three other European countries - which are not among the most developed - share the same flat taxation system: Bulgaria (10% flat tax rate), Hungary (15%) and Estonia (20%). 

“Among the Eastern European peers, Poland has three income tax rates, depending on the income. Those earning under EUR 722 (gross, per month) pay no income tax, those earning between EUR 722 and EUR 20,000 (gross, per month) pay an 18% income tax and for those who earn more pay a 32% income tax. The corporate tax rate is 19% [versus 10% in Romania]. In Greece, the income tax rate is 44%, and the corporate tax is 24%. The examples can continue with Spain, where the taxation of incomes higher than EUR 60,000 reaches 37%, and the minimum rate is 19%. Germany applies even higher tax rates to finance its budget: 15%, 42% and 45%, but protects single people with incomes of up to 7,700 euros, who are completely exempt,” Grindeanu argues.

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andrei@romania-insider.com