The underground economy in Romania: The state loses approximately 80 billion lei annually in tax collection / What money would come to the budget through digital payments – Study

​Romania loses approximately 80 billion lei annually in tax collection through the underground economy, characterized in particular by undeclared work, according to a study by Visa and the consulting company Kearney. “A 5% increase in digital payments for five consecutive years would bring about an increase in GDP of about 7 billion lei and an increase in tax collection of about 1.9 billion lei,” the study says.

Romania – on the 3rd place in the top European countries regarding the underground economy

The informal or underground economy is characterized by undervalued income and undeclared work, leading to distortion of market competition, reduced social security contributions and losses in tax collection.

Romania’s underground economy is estimated at 30.1% of GDP in 2022, i.e. 86.3 billion euros, on the 3rd place in Europe, being exceeded only by Croatia and Bulgaria.

The sectors with the highest penetration of the informal economy in Romania are Construction (47%), Industry (37%), Trade, transport, accommodation and food (35%), and Agriculture and fishing (30%).

In Romania, around 67% of transactions are in cash, in stark contrast to other countries such as the UK with 12%, which is one of the least cash-dependent economies in Europe.

What could be improved through the digitization of the state

The government can further encourage the growth of digital payments by improving digital payment infrastructure and incentivizing digital transactions.

Regarding acceptance, the future digitalization strategy in Romania could include the imposition of mandatory acceptance of digital payments.

To further encourage digital payments, the government could introduce tax refunds or cashback programs for digital payments. For example, in Greece, where tax refunds for digital payments were part of a comprehensive digital payments strategy, digital payments per capita doubled between 2017 and 2021.

In addition to digitizing payments, the government can reduce the informal economy by introducing artificial intelligence data-mining techniques to improve overall tax collection performance.

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