Romania: Technical Assistance Report on Improving Revenues from the Recurrent Property Tax

This paper highlights Romania’s Technical Assistance report on improving revenues from the recurrent property tax. The current area-based property tax system in Romania is inefficient, producing revenue below its potential, while the taxable value determination is inequitable and complex. The best guiding principle for the property tax reform is to remind taxpayers that a property tax is in the first instance a benefit tax. Comprehensive property tax reform is complex, requiring both political and technical coordination, informed by realistic timelines. In respect of a recurrent property tax, there are two broad approaches to determine a taxable amount. The first approach—value-based assessment—utilizes methods and techniques that rely on market transactions to inform the value of property. It is generally agreed amongst experts that where it is possible to use the market-value approach in practice, since it provides the better, more buoyant, and more equitable tax base. A value-based assessment tends to better differentiate the tax burden between low-income and high-income households—accounting better for ability-to-pay or vertical equity.