A fair, taxpayer service-oriented revenue administration for the Romanian taxpayers and citizens will reduce evasion and improve tax collection.
WASHINGTON, April 26, 2013 – The World Bank’s Board of Executive Directors today approved the EUR70 million Revenue Administration Modernization project for Romania. Through this project, the World Bank is partnering with the country to increase effectiveness and efficiency in the collection of taxes and social contributions; increase tax compliance; and reduce the administrative burden on taxpayers to comply with their responsibilities under the tax laws. The National Agency for Fiscal Administration (NAFA) will manage the implementation of the project.
Modernization of revenue administration is an important component of the Government’s economic reform program. Despite recent fiscal adjustment efforts, the external environment in Europe and weak growth in Romania will continue to pose a risk to macroeconomic stability. Given the limited headroom for new spending there is a strong interest in improving the efficiency and effectiveness of revenue collection. The government of Romania places importance on an effective tax administration that can encourage voluntary compliance and deal with tax evasion in a more efficient and technology-aided environment.
The World Bank’s Doing Business Report 2013 shows that in Romania there is still much to be done to improve the ease of paying taxes and reduce the high number of tax payments. Also, Romania has a large number of small taxpayers facing a complex tax regime – both taxpayers and NAFA must use resources to manage their responsibilities disproportionate to the revenue contribution made by this segment of the economy.
Revenue performance gains during the boom years of 2004-07 were modest with the revenue-GDP ratio rising from 27.2 to 29.0 percent; while revenue losses during the recession were severe, with tax-GDP ratio dropping back to 27.2 percent in 2010. Romania’s tax efficiency index is one of the lowest in EU countries, at 54 percent and 61 percent for VAT and social contributions respectively.
Investments in key government institutions, including and not limited to revenue administration, are an important pre-condition for Romania to continue its convergence with the European Union.
“NAFA has laid a solid foundation for the next generation of revenue administration reforms that will span the next five years,” says Bernard Myers, task team leader and senior public sector management specialist. “NAFA has decided that the next reforms will focus on fighting tax evasion, reducing the administrative burden on taxpayers, and increasing collection efficiency and the project is contributing to these goals.” Myers concludes: “A modernized NAFA will be fair, taxpayer service-oriented, and effective in identifying tax evaders, and it will, as a result, reduce evasion. The restructuring of NAFA and the reengineering of business processes is vital to the Ministry of Public Finance’s objective to increase revenue as a share of GDP.”
A modernized NAFA means one that is more efficient and effective. In general, a modern tax administration will seek to minimize direct contact with the taxpayer, and taxpayer service is provided through the use of a robust self-service website, through an accessible call center, and other means available. Reduced physical contact also minimizes opportunities for corrupt behavior. The project will implement an improved taxpayer service function to meet these challenges. Once the project will be completed, NAFA staff will be properly trained and distributed across the organization, with a focus on staff re-assignment to key areas such as audit and debt collection.
The development of the project design has been informed by past work, including a recent World Bank functional review of the Ministry of Public Finance, several International Monetary Fund (IMF) diagnostic reports, and various European Union (EU) studies. There are four main project components: (1) institutional development; (2) increasing operational effectiveness and efficiency; (3) taxpayer services and corporate communication; and (4) project coordination and management. The loan is a LIBOR-based Euro single currency IBRD Flexible Loan plus fixed spread, with 12-year maturity, including a five-year grace period, with level repayment pattern. The expected effectiveness date is October 2013.