The Impact of the Personal Direct Income Tax on the Romanian Agriculture. A critical analysis.

Abstract

After several years in which the individual producers were except from tax payment for the personal agricultural income, in 2013 a new special direct tax was introduced in Romania. The paper aims to deepen the economic understanding of the potential consequences of this tax. It proposes a simple micro simulation model used to evaluate the tax revenue obtained by the state budget. It also investigates the potential outcomes at the farm level using different scenarios. The material is represented by the official statistic issued about the Romanian individual farms (number, size, livestock, and economic orientation). Results suggest that more than 900 thousands of individual farms will pay it which will increase the administrative tax-cost. The lack of farmer education and information is negative correlated with its effectiveness. The tax revenue is low, but it can bring positive results in decreasing the untaxed economy. For the subsistence and semi-subsistence individual producers the tax will act as negative incentives for crop-pattern diversification and farm-size increase. Thus it has to be fallow by agriculture policy measure such as to sustain the small individual farms in their effort of becoming economic self-sufficient.