Increasing VAT collection, the viable option for increasing budget revenues. How much is the collection deficit?
Vlad Boeriu, Deloitte Romania

Opinion by Vlad Boeriu, Fiscal and Legal Services Coordinating Partner, Deloitte Romania

Restoring the budget balance by reducing the deficit to a sustainable level must be of concern to decision makers throughout the Romanian economy, as debt financing becomes increasingly expensive and, with the dissipation of the effects of the COVID-19 pandemic, the tolerance of investors and international bodies to countries with high deficits will decline. The mission is difficult, given the insufficient rate of increase in budget revenues in relation to the limited expenditures and options available to the state to increase revenues without affecting taxpayers already weakened by the pandemic. But the new European Commission report on the VAT gap once again indicates the area where there is potential for increased collection.

The budget construction for 2021 is based on revenues of over 386 billion lei, according to the latest budget rectification, of which, according to the Fiscal Council, around ten billion lei represent amounts recovered from taxes deferred to payment last year by taxpayers, based on state-facilitated facilities. At the same time, the expenditures scheduled for this year exceed 471 billion lei, so that the budget deficit will reach almost 85 billion lei (7.13% of GDP). Given that spending cuts are difficult to achieve and, above all, undesirable, as they would affect both the population and the development projects needed to catch up with other European countries, raising revenues remains the only solution to reduce the budget deficit below 3% of GDP, a level considered sustainable at European level and assumed by the Romanian authorities by the end of 2024.

The VAT collection deficit is growing

The goal is not easy to achieve in an economically complicated period and with still uncertain prospects, in which taxpayers need to be supported rather than overburdened. Therefore, the options for the authorities to increase both revenue and protect taxpayers are somewhat limited, but not non-existent. Only from the reduction of tax evasion in the VAT area could the state collect significant sums, considering that from the data of the European Commission it results that the VAT collection deficit remained high and increasing in Romania, in 2019, at 34.9% (over level of 2018, 32.7%), the highest in the EU for the seventh consecutive year. In absolute terms, this percentage is equivalent to 7.4 billion euros.

In the European ranking, Romania is followed by Greece (with a deficit of 25.8%, down from 30.1% a year ago) and Malta (23.5%, up 5.4 percentage points ). The European average was 8.6%, down 0.8 percentage points from 2018.

By comparison, in neighboring countries, the VAT collection deficit is much smaller and declining. In Bulgaria it fell by 2.5 percentage points to 8.3%, and in Poland by 0.3 points to 11.3%. In Hungary, although it increased by 0.8 percentage points, the deficit remains low at 9.6%.

For 2020, the commission estimates that in Romania the revenue deficit will decrease to 33.9% (by one percentage point), in Bulgaria it will reach 7.2%, in Hungary, to 6.1%, and in Poland, to 10 %.

Therefore, there is potential to increase revenue to the state budget by reducing the VAT gap, especially if we look at developments in neighboring countries following the implementation of effective measures in this direction. For example, if Romania were to reduce this revenue deficit by five percentage points in one year, a possible performance if we refer to Greece in 2019, or to Hungary and Poland in previous years, could raise additional budget revenues over one billion euros a year.

For this year, VAT revenues are estimated at 79 billion lei, up by more than 30% compared to 2020, but beyond the fact that it refers to an extremely difficult year for economic activities, in which VAT revenues have low compared to the previous year, also incorporates deferred payments last year. Under these conditions, a reduction in the VAT revenue shortfall would help increase budget revenues from this tax, which currently accounts for about 20% of total state budget revenues.

Implementation of the necessary measures to increase collections has started, but efforts need to be stepped up by both the authorities and the taxpayers, given the growing pressure on the budget and the still uncertain economic situation.

Technology-based solutions to consider in the fight against evasion

Of the measures being implemented, by far the most important is the introduction of reporting in the SAF-T (Standard Tax Audit File) system, which becomes mandatory for large taxpayers from January 1, 2022, and for medium and small taxpayers, from 2023, respectively 2025. As an exception, for the financial-banking institutions and the insurance-reinsurance companies, included on December 31, 2021 in the category of large taxpayers, the reporting obligation in the SAF-T system starts in 2023.

Another measure meant to help increase the collection is the launch of the e-invoice IT system, currently optional in the relationship between private companies and state institutions. This system will become mandatory for such transactions and, in the future, be extended to invoices issued between companies - most likely from 2023. This system will allow tax inspectors to track in real time the situation of invoices issued, to check at distance and have a much clearer picture of the cases in which they need to make additional checks.

In addition, ANAF plans other measures to ensure better tax collection, based on the expansion of digital services and ensuring the interoperability of IT systems that will ultimately lead to the identification and reduction of non-compliance with declaration and payment.

In conclusion, the collection of larger amounts from the state budget is an indisputable necessity and it is increasingly clear that this is not possible in the absence of modern, technology-based mechanisms that allow real-time information exchange between authorities and companies. , so as to detect in advance possible fraud attempts or involuntary mistakes, both for the benefit of the state and the correct taxpayers.

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