Formalizing the underground economy in Romania


25 January 2016

How Avatar Technologies can help the Romanian government optimize tax collection for the benefit of the country’s economy.

Taxes play an essential role in the economy of any country. But emerging countries like Romania are more likely to struggle with budget shortfalls, so the necessity to collect taxes effectively takes on even more importance. For the governments of these countries, an increase in tax revenue, brought about through the formalizing of informal trading and the control of tax fraud, means a stronger economy.

Informal trading is crippling the Romanian economy. It currently represents as much as 28% of the GDP, or EUR 30 billion. According to Catalin Cretu, Regional Director of Visa Europe for Romania, Croatia and Slovenia, this is due to the fact that card payments are not widespread in Romania. “The inverse relationship between the degree of electronic payments and the underground economy is obvious at European level,” says Cretu.

It has been proved that electronic tools, such as POS systems, are more effective than paper-based methods when it comes to recording sales and, importantly, the corresponding VAT. The Electronic Fiscal Declaration (EFD) solution proposed by Avatar Technologies, a parent company of Global Voice Group (GVG), has the capacity to optimize tax collection and compliance in the Romanian retail sector. It gives the authorities easy and total access to sales- and tax-related data, which leads to improved tax collection and reduced tax fraud.

The EFD solution is effective even in countries where people still prefer paying cash, as is the case in Romania. It helps create an environment in which the benefits of integrating the formal economy eventually outweigh those of remaining informal, both for traders and consumers. The EFD terminals are affordable, and traders are given free access to several value-added services. Their clients are automatically entered into a prize draw when they request their receipt, which doubles up as a lottery ticket. The solution also facilitates the authorities’ work by allowing them to carry out checks on the taxpayers, via a secure device-monitoring interface.

With Avatar’s EFD solution, Romania may well achieve, or even overachieve, the objective of collecting 30% of its taxes through card purchases, which would allow the government to secure EUR 5.2 million. 

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