Unknown or almost nonexistent till ’90 years, the phenomenon of tax evasion had abundantly flourished in the Romania’s transitional economy, covering all its fields with black spots, under many, various and harmful appearance. The first laws stipulating the profit and the salary taxes also had revealed the appetite of the contributors for the tax evasion, in a small measure at the beginning, of course, because of the economic spirit of those years. After the regulations for the value added tax and the excise taxes, as well as due to the innumerable modifications of the fiscal legislation, the fiscal evasion knew a considerable development and diversification, greatly stimulated by the controversies between the fiscal and the bureaucratic pressure.tax evasion, tax avoidance, fraud, fiscal ability, fiscal law, black economy

Ioan, Viorica

Susanu, Monica

English

Research Papers in Economics

  1
 
Fiscal Evasion – Principal Cause and Consequence of the Romanian 
Gradual Transition 
 
Monica SUSANU, 
susanu_mnc@yahoo.com  
Associate Professor, PhD 
Viorica IOAN, 
 ioan_viorica@yahoo.co.uk  
Senior Lecturer, PhD 
“Dunarea de Jos” University, Galati 
 
Abstract 
Unknown or almost nonexistent till ’90 years, the phenomenon of tax evasion had abundantly 
flourished in the Romania’s transitional economy, covering all its fields with black spots, under   
many, various and harmful appearance. The first laws stipulating the profit and the salary taxes 
also had revealed the appetite of the contributors for the tax evasion, in a small measure at the 
beginning, of course, because of the economic spirit of those years.  
After the regulations for the value added tax and the excise taxes, as well as due to the innumerable 
modifications of the fiscal legislation, the fiscal evasion knew a considerable development and 
diversification, greatly stimulated by the controversies between the fiscal and the bureaucratic 
pressure.  
 
Keywords: tax evasion, tax avoidance, fraud, fiscal ability, fiscal law, black economy  
JEL classification: E 26, E 62; H22, H26, K34; P35, P37 
 
1. The essential premises as deficiencies in the fiscal policy 
While individuals’ incomes were almost equal and constant before the nineties, with some 
very few differences (and, actually, illegal incomes, such as those earned by the 
physicians, trade workers, militia’s officials and public clerks or simply managers of public 
restaurants), good premises were installed during the transitional process as to widen the 
area of such revenues gainers. But the human behaviour itself has an outstanding 
importance for the growing effects of the tax evasion, among other specific causes. 
And to improve the manners of fiscal evasion as well! ... 
 
Many deficiencies in the fiscal policy and regulations are to be blamed for the multitude of 
ways that the evasion pervaded in the whole economy: 
  Generally high fiscal pressure; 
  Incoherent or ambiguous regulations; 
  Discrimination, protectionism or simply lack of rigour in applying the fiscal 
stipulations; 
  Lack of proper instruments for a proper fiscal discipline; 
  Lack of contributor’s culture meaning the assumption to pay taxes a. s. o. 
 
The growing trend of the investments in all the economic fields has also stimulated the tax 
avoidance, meaning a clever using of the fiscal laws stipulations in order to hide money 
from the public taxation.    2 
The first years of the transition were characterized by an explosion of rapid and great 
revenues which were too quickly gathered by ever other and larger social categories than 
before. Not to forget the eighties, with their severe constraints for electricity, proper life-
conditions and even the most essential food stuff….Suddenly and easily acquired and 
continuously growing, these amounts of money were primarily directed towards food, 
clothes and electrical home appliances. After a short time, they were spent for luxury 
personal purposes such as huge houses, very expensive cars, or trips and entertainment. 
There are (official) estimations that, due to these procedures, over 10 billion US dollars 
were transferred abroad between 1990 and 2004, when the first form for the regulation of 
the fiscal evasion was adopted. 
 
2.  Constitutive elements and aspects of the fiscal fraud 
It is an old and well-known story that both tax avoidance and tax evasion have a very bad 
influence upon the public budget and this is the reason for the public authority’s deep 
interest and involvement to improve the methods and instruments meant to stop these 
phenomena. In the figure bellow one can see the (logical) efforts of all the contributors to 
find the most convenient position to avoid paying taxes. There are many ways, from the 
simplest error, to the most sophisticated use of the fiscal options, from the abstinence of 
paying, to the most cunning manifestation (or even abuse) of the fiscal regulations.  
 
 
            Source: Government White Book www.mfinante.ro   
 
The practice reveals a certain difficulty in distinguishing the voluntary accounting error, 
from the conscious decision of avoiding taxes, so that a limit between the fraud and the 
ability should be traced step by step to each case. There are three constitutive elements that 
determine the fraud and they are floating at the boundary between the fiscal and the 
criminal law: 
a. The legal element is an obvious condition; the principle of legally founded 
accusations is necessary and ensures the contributor a real and solid guarantee against the 
possible abuses the public bureaucratic might do; thus, the solution for a fraud is strictly 
conditioned by a very precise law stipulation; 
b. The intending element is the vulnerable and also conspicuous element of the fraud 
and there is not a common opinion in the law science or practicing yet; in order to prove 
the intention it is necessary that the contributor should have been acquainted with the 
terms of violating a fiscal regulation or he should have voluntarily acted, in perfect 
acknowledgement; it means that one should clearly demonstrate that the fraud is 
committed freely and under no constraint; 
Illegal zone 
Fraud  
Evasion 
 
 
Legal zone 
Abstinence 
Error 
Avoidance  
             
            Grey zone       Fiscal ability   3
c. The material intent requires that the fraud should be considered in a latent estate, so 
that an outside factor is stimulating it; therefore, many fiscal stipulations in some 
developed economies sanction the intentions, not only the very action of not paying taxes.     
Apart from the consecrated division of avoidance and evasion, an important approach in 
the present exposure refers to the most frequent aspects of the fiscal fraud, especially those 
broadly prevalent in the Romanian transitional economy: 
 
♦ Traditional evasion meaning simulation which causes partly or entirely subtracting from 
the fiscal duties, either by incorrect or by false documents: 
  ◘ Inexactness in filling up the required fiscal papers; 
  ◘ Intended reduction of the revenues, as to diminish the added value tax, excise or/and 
profit taxes; 
  ◘ Cash - operations without invoice or receipt, correspondingly; 
  ◘ Hypothetic deductions and expenses that can diminish the final base of taxation a. s. o. 
 
♦ judicial evasion means hiding the real nature of an organism or of a contract, in order to 
avoid certain compulsory stipulation for paying taxes; for instance, transforming a 
partnership agreement into a labour contract, as for its beneficiary should gain certain 
advantages as a salaried worker; 
 
♦ Accounting evasion is more difficult to identify because it creates the impression of a 
correct registration; the appearance of precise evidence relies on false documents 
eventually and contains huge or exaggerate expenses, for the same well known purpose, 
i.e. diminishing the taxable revenues; 
 
♦ Evasion through misevaluation refers to the underestimation of stocks or to the over 
estimation of the amortization of intangible assets, in order to transfer the profit taxation in 
the following periods.  
 
3.  Measuring the dimension of the fiscal fraud 
Since political reasons are mostly involved in such actions, in our country, measuring the 
magnitude is a complex procedure based on approximate methods exclusively, and 
therefore, the results are often hazardous, consequently. There are still many and various 
imperfections in the fiscal regulations, as many as the strongest causes of the failures in 
this hard battle against such a devastating scourge.  
 
However, there is much estimation about the real size of the fiscal evasion and for the 
period 2001-2006 they show a value over 40 per cent of GDP. International Reports, such 
as USA Treasury Report concerning Romania states that huge economic result, the 
equivalent of more than 42 cent from the real GDP, was successively achieved during 
these years by the so-called black economy and that it has simply escaped from the official 
statistics and taxation as well.  
 
The figure bellow presents a complex structure of this phenomenon, including selected 
percentages of different categories of taxes in the above mentioned period:   4 
The Tax  2000    %   2005    % 
Added Value Tax  27.80  39.68 
Profit Taxation  33.03  25.24 
Wages Taxation  6.73  8.78 
Excise   14.60  10.07 
Local Taxes  3.30  3.21 
Others   14.54  13.02 
TOTAL 100.00  100.00 
             Source: Government White Book www.guv.ro; www.mfinante.ro   
 
Despite missing many necessary details concerning some sociological aspects of the 
matter, about 98.2 per cent from these players are companies in both small and big 
business, comparing to only 2.2 per cent that, are individuals. As one can see in the figure 
above, the value added tax is in an ascendant trend of evasion along these years, in spite of 
the unique rate of only 19 per cent for all kind of goods and services. However, the high 
mobility and diversity of trade and transactions are susceptible to a high rate of tax 
evasion, even if the official statistics do not precise that.  
The outrageous growth of this scourge also flamed  the reports provided by the secret 
services in our country, that appreciate that over 40 per cent from the public revenue is 
frauded by different ways of tax evasion or/and contributors. The following figures reveal 
the percentages of facts that generate evasion, as they were analyzed for 2005: 
1. Errors in the base of taxation       38.50 
2. Frauds in using fiscal  papers    36.00 
3. Overestimation of the expenses      25.50 
Yearly diminishing of the fiscal revenues, the hardly controlled inflation because of the 
unpredictability of utilities costs, as well as the statistics and reports provided by the public 
finance administration reveal a continuous growing rate of the fiscal evasion.  
 
4. Conclusions  
The transition of the Romanian economy to the capitalism was gradual, incoherent and 
harmful, and among the causes that determined such a hard period both for the individuals 
and for the companies, the fiscal fraud or the evasion is on an outstanding position. 
Consistently supported by the corruption and the protectionism, this phenomenon hides the 
core of all the vicissitudes that our society inherited from the communism. Unfortunately, 
we all should struggle with it still long time from now on.   
 
References 
BALABAN C., „Fiscal Evasion. Controversies on Judicial Theoretic and Practical 
Aspects (Rom.)”, Rosetti Publishing House, Bucharest, 2003. 
 
CLOCOTICI D., GHEORGHIU Gh. „Fiscal Fraud and Evasion (Rom.)”,LuminaLex 
Publishing House, Bucharest, 1996. 
 
Government White Book, www.guv.ro  
 
www.mfinante.ro   

Fiscal Evasion – Principal Cause and Consequence of the Romanian Gradual Transition

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