The European Commission estimates that transitioning to a progressive income tax system would bring an additional 11.8 billion euros to Romania’s budget.
Implementing a progressive tax with three brackets – 6%, 12%, and 18% – instead of the current flat rate of 10% could generate additional revenues of around 59.6 billion lei, equivalent to 25% of current tax revenue, according to an analysis by the European Commission consulted by Profit.ro.
The simulation was conducted using the EUROMOD model and compared to the baseline scenario, where the current system remains unchanged.
How the Commission's Proposal Works
The model proposed by the European Commission stipulates that the first tax rate (6%) would apply to incomes up to one-third of the average income, the second one (12%) to incomes up to the national average, and the third one (18%) to incomes exceeding this average.
The reform would have a clear redistributive nature: the incomes of the wealthiest households would decrease by 4.43%, while the poorest households would see a marginal increase of 0.16%.
The analysis also indicates that adopting this model would have a slightly positive impact on social inequalities. The Gini coefficient, which measures income inequality, would decrease by 0.0079 percentage points, and the s80/s20 ratio (the ratio between the incomes of the richest and poorest 20% of households) would register a reduction of 0.2189 percentage points.
Limitations of the Simulation
The simulation did not take into account the indirect economic effects of the measure - such as possible changes in employment, investments, or GDP.
Additionally, the analysis focused strictly on income tax, without considering the disproportionate impact of social contributions, which remain high in Romania, especially for wage incomes.
In 2024, the Romanian state collected 49 billion lei from wage and income taxes, 21% more than in 2023. However, the estimated budget deficit for 2025 is 134.7 billion lei.
In this context, international institutions such as the European Commission, IMF, and World Bank have been recommending for years that Romania transition to a progressive tax system.
The document also highlights that in Romania, wages are heavily taxed through social contributions (25% for pensions and 10% for healthcare), while other types of income - such as dividends, rents, capital gains, or royalties - enjoy preferential treatment, either being exempted or capped in terms of contributions.
The Commission argues that any tax reform should aim to globalize incomes and apply the same rules to all income categories, including a general cap on social contributions.