World Bank finances Romania’s revenue administration modernization project

World Bank finances Romania’s revenue administration modernization project

 

By Daniel Stroe – Bucharest

The World Bank’s Board of Executive Directors on Saturday approved the EUR70 million Revenue Administration Modernization project for Romania, the Washington based institution has announced.

“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” reads a press release of the financial institution.

Modernization of revenue administration is an important component of the Government’s economic reform program because, 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, further reads the text.

According to the World Bank’s Doing Business Report 2013, 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.

The project comes as Romania lags behind most of the EU countries when it comes to collecting revenues. Revenue performance gains during the boom years of 2004-2007 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, the World Bank also revealed.

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.

The modernization project is meant to render NAFA 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 World Bank explained.