Romania to waive outstanding debt penalties to help tax compliance

Romania to waive outstanding debt penalties to help tax compliance

Romania's coalition government approved a series of measures on Wednesday to improve revenue collection and curb a widening budget deficit, including a partial debt amnesty and waiving penalties on unpaid tax.

The European Union state, which holds national and presidential elections later this year, saw its budget deficit widen to 4.02% of economic output at the end of July, effectively putting the government's full-year target of 5.0% out of reach.

The country has been under the EU's excessive deficit procedure since 2020 - whereby it must present the European Commission with a multi-year plan to reduce the deficit back to below the bloc's ceiling of 3% of GDP. Its tax revenue amounts to less than 30% of GDP versus the EU average of 41%.

"We want to encourage compliance and at the same time recover some of the outstanding debts that would have never been returned to the budget," Finance Minister Marcel Bolos said.

The finance ministry said recoverable outstanding debt stood at 71.8 billion lei ($15.97 billion), or roughly 4.06% of GDP. The draft law approved on Wednesday waives penalties for individuals, companies and state institutions provided they pay their taxes this year.

The waiver could benefit 330,735 companies and state institutions, the government said, adding it would also grant partial amnesty of 25%-50% on individuals’ outstanding principal debt, which could benefit up to 848,705 taxpayers.

Other measures to shore up the public finances approved on Wednesday include increasing budget co-funding for state investment projects supported by EU funds and freezing public sector hires.

The European Commission expects Romania's deficit will rise to 6.9% of gross domestic product by the end of 2024, and further still, to 7% of GDP in 2025 - the highest forecast in the bloc.

Ratings agencies, analysts and investors have all said they expect tax hikes from 2025.