Romanian government to strengthen laws against tax evasion

April 11, 2005



The Romanian government has drafted legislation pertaining to tax evasion that makes it a criminal offence on the same level as crimes against individuals. Developed with the aid of Romania's business community, the new law is expected to reduce corruption and tax evasion. According to the new law, the maximum jail term for tax evasion will be boosted up to 20 years. This sentence, however, will only be passed in circumstances of large-scale fraud. For evasion of up to the equivalent of 10,000 euro, the punishment will be either a fine or up to 2 years in prison. For tax fraud of up to 500,000 euro, the term will be extended to 2-8 years in prison. It is only for those whose tax evasion exceeds 1 million euro that the jail term will range between 10 and 20 years.

In the same package of legislation, the government approved several changes to banckruptcy law, which makes it easier for businesses to file for bankruptcy. The new laws are expected to make Romania's business environment cleaner, resulting in more foreign investment, less corruption and more revenue for the government.

At the start of the year, the Romanian government introduced a new flat tax system for Romania, in which the tax rate is 19% for both personal income and corporate profit. This has led Romania to have one of the most liberal tax policies in Europe. The lower rate of tax has already reduced fiscal evasion to a significant extent because more people and businesses are encouraged to pay the tax. However, in order to further reduce the grey economy in Romania, advisers said at the start of the year that the government must also back this up with tougher legislation against tax evasion. Previously, Romania's tax evasion laws were fairly lax, leading to quite a significant extent of tax fraud. Now, with the new, highly-publicised tax evasion laws, it is expected that the risk of getting prosecuted for not paying an already-low tax rate will force many businesses out of the black market into the legal economy.