Yahoo – AFP,
Mihaela Rodina, 24 Aug 2014
Bucharest (AFP) - Tax evasion is eating away at the heart of Romania and holding back the country, among the poorest in the European Union, in its efforts to catch up, analysts warn.
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Vendors
arrange their fruits and vegetables to be sold at a marketplace in
Bucharest
August 20, 2014 (AFP Photo/Daniel Mihailescu)
|
Bucharest (AFP) - Tax evasion is eating away at the heart of Romania and holding back the country, among the poorest in the European Union, in its efforts to catch up, analysts warn.
The
estimates for the costs of the so-called black or undeclared economy are huge:
about one quarter of economic activity and one quarter of people in work are
believed to be beyond the reach of tax inspectors.
If all
activity were taxed fully, national tax revenues would almost double.
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Fruits and
vegetables for sale at a
marketplace in Bucharest August 20,
2014 (AFP
Photo/Daniel Mihaikescu)
|
In some EU
countries, the shadow economy accounts for a significant slice of activity, but
the European parliament said that Bulgaria and Romania were the most severely
affected.
This is
despite campaigns by EU authorities to encourage governments of new members in
eastern Europe to crack down on corruption and tax evasion.
Bulgaria is
the poorest member of the EU, and Romania comes second.
A recent
report by the Council of Europe's anti-money laundering committee said that in
Romania, the shadow economy accounted for 28.4 percent of gross domestic
product in 2013.
That
represented about 40 billion euros ($53 billion) a year of uncollected taxes in
an economy in which tax revenue amounts to about 46 billion euros.
"Tax
evasion is on the rise in Romania and it poses a threat to its national
security," economist Ionut Dumitru, head of the country's fiscal council,
told AFP.
The revenue
shortfall translates into dilapidated hospitals, patients unable to get
treatment or schools lacking basic facilities.
"With
revenues accounting for less than 33 percent of GDP, compared to an EU average
of 45 percent, Romania will never have an education system as good as Germany's
for instance," Dumitru said.
"And
sacrificing a nation's education and health means sacrificing its future."
Sophisticated fraud schemes
From the
underpaid mason working on the black market to the prosperous businessman
benefiting from fraud, tax avoidance is omnipresent, prompting authorities to
toughen their stance.
View
galleryFruits and vegetables for sale at a marketplace in …
Fruits and
vegetables for sale at a marketplace in Bucharest August 20, 2014 (AFP
Photo/Daniel Mihai …
In 2013 a
special anti-fraud body (DGAF), tasked with clamping down on criminal rings,
was set up within the tax agency.
In one of
the most spectacular cases uncovered by the DGAF, a network of 30 Turkish,
Jordanian and Romanian nationals cheated the government out of 24 million euros
in value added sales tax (VAT) dodging.
The alleged
fraudsters set up a complex chain of 58 dummy companies to cover up their
fraudulent operations selling 100 million euros' worth of fruit and vegetables
on the Romanian market.
Twelve of
them were arrested.
"Another
major case concerned a network of 22 Romanian and Chinese nationals who created
15 companies selling household appliances without paying VAT," DGAF
vice-president Romeo Nicolae told AFP.
The loss
was estimated at 12 million euros.
Alina Bica,
head of the prosecutor's office dealing with organised crime and terrorism,
said that fraud schemes were becoming increasingly sophisticated.
"Doctored
bookkeeping, fictitious companies active for 30 or 40 days before disappearing,
concealed revenues from illegal transactions ... white-collar criminals find
new ways to cheat," she said.
Bica added
that 659 large-scale tax dodgers were put on trial in 2013, and frauds
estimated to have cost more than 200 million euros were uncovered.
But
sometimes tax evasion allegations tarnish the top of the law-enforcement system
itself.
The former
head of the tax agency Sorin Blejnar is facing trial in two cases for alleged
complicity in tax evasion related to two criminal rings which defrauded the
state of about 60 million euros.
One of the
rings was headed by Radu and Diana Nemes, two Romanians who were extradited
from the US in May this year.
The media
said the couple owned a yacht, seven vehicles and hundreds of gold and silver
coins which they left behind on their multi-million dollar property.
Working
in the shadow economy
Tax dodging
takes more mundane forms.
Experts say
that undeclared labour accounts for two thirds of the shadow economy.
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Fruits and
vegetables for sale at a marketplace in Bucharest August 20, 2014
(AFP
Photo/Daniel Mihailescu)
|
Mihai
Iancu, 31, is a construction worker employed by a small company.
He earns
about 380 euros ($504) a month, which is the average wage in Romania, but
neither he nor his employer pays any labour taxes.
"I
have no health insurance and if I am sacked I will get no unemployment
benefit," he said.
Like him,
about 1.45 million people, or 23 percent of Romania's workforce, were working
in the shadow economy in 2012, the fiscal council said.
In
construction, about 60 percent of employees are not declared.
Last year,
in a bid to streamline its tax agency, Romania signed a deal with the World
Bank on a 70-million euro loan which will be used mainly to set up an
integrated IT system and on training tax inspectors.
Dumitru of
the fiscal council said that Romania had to restore confidence to the tax
system.
"When
they see the deplorable state of social services people tend to say: why should
I pay taxes when I get nothing in return."
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