The International Monetary Fund recommends that Romania adopt measures such as increasing VAT, excise duties, dividend tax and introducing two income tax rates, 15% and 25%, and reducing or eliminating the health contribution. The IMF report also talks about changing property taxation and further reducing the threshold for micro-enterprises.
The IMF states that the measures it proposes, if fully implemented, could generate revenues of at least 1.2% of GDP in 2025, according to Economedia.ro. The proposal is part of an IMF technical assistance project requested by Romania’s Finance Minister.
First, the IMF recommends changes to labor taxation. It suggests moving from the current flat 10% income tax on labor to a system with two marginal tax rates—15% and 25%, the latter applying to top earners (90th percentile). To reduce the tax burden for most workers, the Fund advises significantly reducing or even eliminating the health insurance contribution. If fiscal space allows, Romania should also consider addressing high tax pressure on low-income earners by offering more generous allowances or implementing workplace benefit programs.
The IMF also argues that pension contributions should either no longer be deductible or pension income should be taxed. Excise duties on cigarettes, spirits, and beer are very low in Romania compared to other EU countries, the IMF warns.
Regarding capital and property income taxation, the Fund suggests increasing the tax rate on dividends received by individuals from 8% to 10%, aligning it with the interest income tax rate. This would increase revenue, reduce tax arbitrage, and improve tax progressivity.
For property tax, it recommends merging land and building taxes into one and reducing exemptions, while providing support for vulnerable groups through other means.
The IMF also believes Romania could improve corporate income taxation by removing tax credits for corporate sponsorships and replacing the exemption for reinvested profits with a tax credit of up to 50% of eligible investments, capped at 10% of corporate income tax liability. The R&D tax incentive should be restructured as a refundable tax credit.
The current €500,000 revenue threshold for microenterprise tax status should be substantially lowered—ideally harmonized with the VAT registration threshold (€88,500).
On consumption taxes, the IMF recommends raising reduced VAT rates to the standard rate, except possibly for basic foods—this adjustment could be phased in to lessen the inflationary impact. The standard VAT rate should increase from 19% to at least 20% in 2025 and eventually to 21%, approaching the EU-27 average of 22%.
Inflation-adjusted excise duties for tobacco and alcohol should be increased, and duties on still and sparkling wine should be unified at about 60 RON per hectoliter. Excise taxes for fossil fuels should also be raised gradually to meet EU climate targets.
On fiscal deficit reduction, Romania aims to lower its deficit from ~8% of GDP in 2024 to 7% in 2025 and below 3% by 2031. Given limited room for spending cuts, revenue mobilization is essential. Romania has already agreed with the European Commission to implement fiscal reforms to boost revenues by 1.1% of GDP in 2025.
Romania has one of the lowest tax-to-GDP ratios in the EU, leaving ample room to leverage tax policy alongside digital reforms in tax administration. The IMF encourages structural changes to shift the tax burden from social security contributions to income and consumption taxes.
The overall labor tax burden in Romania is among the highest in the EU for low-income earners, though it is below the EU average for average salaries. This high burden discourages labor market participation and undermines income redistribution due to the lack of tax progressivity.
Tax expenditures from social contribution exemptions are significant, and discrepancies in obligations between the self-employed and employees enable tax arbitrage. The IMF supports introducing progressive income tax brackets to enhance equity and revenue.
Public pensions are mostly untaxed in Romania, while pension contributions are deductible—this inconsistency should be corrected to improve the pension system’s sustainability.
Corporate income tax revenues have declined, and productivity is below regional peers. The cost of tax expenditures for reinvested profit exemptions (4.3%) and sponsorship tax credits (7%) is substantial. The most justified incentives are for R&D, which should be turned into refundable credits to better support startups and small firms.
Romania has updated its anti-abuse framework to comply with EU directives, including rules on controlled foreign corporations and thin capitalization. The requirement for microenterprises to have at least one employee has curbed some tax arbitrage.
Still, businesses with higher turnover and margins may benefit from lower effective tax rates than under the standard regime. Freelancers under the microenterprise scheme face lower tax burdens than self-employed professionals. Lowering the turnover threshold would help eliminate those using the microenterprise system solely to minimize tax obligations.
The use of reduced VAT rates instead of the standard rate is equivalent to a government subsidy for consumers of those goods and services—but empirical studies show that only a small share of this subsidy benefits low-income households. Reduced rates are not cost-effective and distort prices, increasing compliance and administrative costs. Raising reduced rates to the standard level would generate substantial revenue.
Excise duties on cigarettes, spirits, and beer are very low in Romania, and wine (except sparkling) is not taxed. Nevertheless, tobacco and alcohol excises contributed 1.2% of GDP in 2022—90% of which came from tobacco due to low alcohol excise rates and high smoking prevalence.
Fuel excise duties should be raised gradually to align fossil fuel prices with climate goals for 2030. Retail fuel prices would need to rise significantly—by 227% for coal, 77% for gasoline, 192% for diesel, 44% for LPG, and 51% for kerosene. Natural gas prices are already at optimal levels for 2024. These hikes should be phased in and accompanied by compensation for vulnerable households.
Romania plans to modernize property taxation by 2025, shifting to a market-value-based system and merging land and building taxes. Until then, the legal framework remains unchanged. Pilot projects have been conducted in some localities, including three in Bucharest.
Wherever market data allows, valuation should be market-based for both residential and non-residential properties, and exemptions should be reduced, with targeted relief offered through other means, the IMF concludes.