The truth about flat-rate income tax in Romania

Abstract

This article is about the 'Myth' of the flat rate income tax in Romania. It is not meant to add another argument for the 'pros' or for the 'cons' (the flat rate income tax or progressive income tax debate). It is simply a reality check of the Income Tax system Romania adopted in early 2006, which started and maintained not only many academic, but also even stronger public policy debates ever since. This article shows that accepting a necessary basic distinction between the nominal and the effective tax rate ends any 'debate' on the subject. Why? Because Romania never had and still does not apply a flat rate income tax, but a progressive income tax rate. The study uses data from 2012 and 2018 and shows how eight effective tax rates and not a single income tax rate were applied in 2012 and five effective income tax rates exist today.2 These evidences were always available not just for the experts and public policy decision makers, but also for the public. They were and still are simply ignored on the background of a misleading ideological noise.