In terms of tax framework, Romania attractive in the EU if we look at the tax rates but from the perspective of people who work, things are not favourable compared to the rest of Europe.
The non-governmental think tank INACO – Initiative for Competitiveness – calculated the day of fiscal freedom – June 6 – for an employee earning the average national wage in 2017.
Only starting from June 7 onwards, the average employee works for herself and her family.
But if we also consider social contributions paid by the employer, for which the same employee works, the day of fiscal freedom becomes July 15th.
The organization explains how it calculated these dates:
Scenario 1: From the EMPLOYEE’s perspective: she works 157 days for the state and 208 days for herself
The average national gross salary of a Romanian employee was 3,288 lei in May 2017, according to the latest INS data available.
The average employee pays social contributions and income tax to the state budget amounted to 981 lei (using the calculsalarial.ro application) and remains with a net average salary of 2,307 lei.
If the employee does not save any of this money and spends it, she pays a total VAT of 438 lei. We considered the standard VAT rate of 19%, not the reduced rates of 5% or 9%. The simplified approach remains relevant because we have not considered any local taxes or other taxes that the employer pays to the state and of course, increase the tax burden on the employee.
Consequently, the employee pays 1,419 lei of the gross average wage to the state. That means 43% of the gross average salary or 157 days a year worked for the state and the rest of them for herself.
In other words, the day of her fiscal freedom, in the employee’s scenario, is June 6. Only starting from June 7, she works for herself – until June 6, she worked for the state.
Scenario 2. From the perspective of the EMPLOYEE and the EMPLOYER: 196 days worked for the state, 169 days for herself
If we add the contributions paid by the employer to scenario 1, of 756 lei for the average national gross salary, we reach a total real salary cost of 4,044 lei.
It is time to understand that this is the real total salary cost for a net average monthly salary of 2,307 lei paid to the employee.
The employee and the employer pay cumulated taxes of 2,175 lei to the state, corresponding to the average national gross wage, which represents 53% of the total real salary cost.
Relative to the 365 days of the year, it means the equivalent of 196 days worked for the state. In this inclusive scenario, the day of fiscal freedom is July 15; until then, she works for the state and after that date, for herself.
Romania ranked 21th in EU in 2016, from a day of fiscal freedom perspective
At the middle of the last year, a similar calculation by the Molinari Economic Institute indicated June 23 as the day of fiscal freedom for Romanians, compared to Bulgaria – May 18, which put Romania in the 21st position among the 28 EU states analysed (corresponding to the 2015 data, with a VAT of 24%).
You can find details about the European ranking HERE.
„So, a Romanian works more than half a year for the state. From this perspective, of an employee who works, the tax framework will have to be reshaped. Not patchily, not with unprepared and untimely chaotic announcements, mandatory with effect as of January 1, 2019, not at all earlier, so that we can meet the principles of tax framework stability and predictability,” said Andreea Paul, President of INACO.
