Mr. Prime Minister Ciolacu doesn’t understand: „We have the highest tax evasion in Europe and the lowest taxes. I understand that when you have the lowest taxes, at least pay those. We have both low taxes and high evasion. So something isn’t working.”
What Mr. Ciolacu is saying is debatable, depending on the type of tax we are referring to. For example, the income tax is low, but overall the level of taxation on labor is high. And the business environment is burdened with all sorts of fees that appear out of nowhere. But he is certainly right when he observes that something isn’t working.
The biggest issue regarding tax evasion is with VAT, which the state is unable to collect, even though it is the easiest to gather.
Why?
One cause is the modest digitization of the tax authorities, the fact that the databases of institutions do not communicate with each other, corruption. State institutions have been filled with incompetent political clients, so those who work efficiently and professionally are very few.
But Mr. Ciolacu evades the main cause.
A country cannot be efficient in tax collection just by chasing the population. You can't chase rabbits all day. The key to the problem is voluntary compliance. Meaning, people willingly go to pay what they owe. A high compliance rate can never be achieved solely under the pressure of fear.
People comply easily under two conditions. Firstly, if they feel that the money they pay to the state is returned to them. That in exchange they have a good healthcare system, an efficient and competent police force, good roads, good schools.
In Romania, you run like crazy to find a good school for your child, if you're sick the first thought is how to get money to be treated abroad, the police force is a disaster, the roads are congested and bad. In general, the return for the money paid to the state is lamentable.
So, the feeling of a taxpayer in Romania is that the state robs him of some money, which is then drained into private pockets through corruption, into populism for electoral campaigns, or simply wasted due to incompetence. And then he does everything in his power not to pay.
Moreover, the common man sees that new rules and threats are invented for him, but in the area of major taxpayers, historical debts, there is silence.
Many evade paying into the pension fund, which would normally ensure their old age. In fact, they believe they will receive a meager pension, much lower than their monthly contribution, so they prefer to save money. Most do not do it or do not know how to do it to avoid devaluation. But they are convinced that they will receive some form of subsistence as long as they have the right to vote.
Voluntary compliance is based on trust. Trust that the government takes care of your money, respects it, and uses it efficiently. That they are competent. That they are accountable, not like the President of Romania who pays for lavish trips with public money, collected from taxes.
When trust is lacking, voluntary compliance cannot exist.
Just as it cannot exist when the taxpayer is tormented in every possible way with contradictory regulations that no one understands anymore, with applications like e-invoicing that cause headaches, with dense and unnecessary paperwork.
And without voluntary compliance, Mr. Ciolacu will continue to wonder why the level of tax evasion is so high, what isn't working.