IMF highlights VAT refund issue in Romania: Too many audit resources wasted in nonproductive way

Specialists from the International Monetary Fund (IMF) mention in a technical assistance report on reducing the tax gap in Romania that authorities are spending valuable resources on refunding VAT with limited success.

Romania currently has the highest VAT collection gap of 44 percent out of all European Union member states. In addition, the overall tax revenue, excluding social contributions, amounted to 18.8 percent of GDP in 2014. This figure is among the lowest in the EU.

“The time used for each audit is excessive compared to international standards. In Romania a VAT refund audit concerning a large taxpayer takes half a year on average, while in advanced administrations such audits typically take a day or less. The intense attention paid to NAFA audit activities by the Court of Accounts, together with the situation that auditors can be made accountable personally for any tax shortfall not discovered during the audits, are said to be the main reasons for these lengthy audits. The audit resources wasted on nonproductive audits are enormous,” said the IMF in the report that focuses on the activity of the Large Taxpayer Office (LTO) of tax administration agency ANAF.

The IMF experts further pointed out that around one third of the total annual resources are used for requests coming from the Court of Accounts, other parts of ANAF and other authorities.

„These audits often produce very small results,” said the IMF.

The ANAF is also doing a poor job on assigning large taxpayers to the LTO, and this is not done in conformity with good international practices.

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„Currently, the LTO struggles to manage about 2,392 taxpayers, who account for less than 50 percent of total tax revenue collected by NAFA. A more correct selection (using a different criterion) would assign 1,200–1,400 taxpayers to the LTO, who would account for up to 60 percent of total revenue,” according to the IMF.

The VAT that Romania collected last year accounted for 7.9 percent, according to projections. In 2014, the preliminary results show that the VAT collected was 7.6 percent of GDP.

The minister of finance Anca Dragu said that the ANAF published the reports of IMF on its tax administration activity in a bid to increase its transparency.

“This is why we are continuing the reform process of ANAF and we have already started to implement the recommendations in the reports,” said Dragu.

The ANAF is currently implementing a large scale modernization program based on a EUR 70 million loan from the World Bank. The overall activity of the agency should be overhauled by 2019.

Ovidiu Posirca