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2.1.2. The taxation mechanism

The tax practice in Romania is using a variety of methods, techniques and methods of assessment, differentiated by: nature of tax or fee; legal status of the payer; taxable object type; tax base evaluation; tools used; the need of regular revenue for the state budget or local budgets.

All the methods and techniques of assessment of tax revenue for state and imposition instruments give content to the taxation mechanism. Imposition refers to identification of all categories of individuals or legal persons who own or obtain a taxable item, the tax base determination and the taxs exact amount, taking one of the following forms: self-imposition, consisting of taxable object identification, assessment and determination of the tax liability by taxpayers on their own responsibility (income tax, value added tax, customs duties and excise taxes); direct imposition, made by obtaining the information required by the tax authorities directly on the nature and value of the object taxable by the tax declaration prepared and filed by the taxpayer (for example, if the imposition of buildings, land or vehicles); indirect imposition, if the tax authorities gather the necessary information for imposition indirectly from third parties (for example personal income tax in the case of wages); standard imposition, encountered when the taxable object is assigned a priori a certain value, depending on which tax shall be payable (self employed who have opted for income taxes on annual income standards: tailors, carpenters, tutors, taxi drivers,). Considering the taxable object evaluation criteria we have temporary and final imposition.

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temporary imposition is characterized by the fact that at the beginning of the fiscal year or in the taxpayers statement, or automatically, the tax authorities impose him a provisional tax and at the end of the fiscal year, the taxable object is known with certainty and its possible to proceed with tax regulation. This type of imposition is used in the case of corporation tax, income from salary, those derived from rental and leasing as well as those obtained from self-employed activities. Final imposing, made after the fiscal year, when authorities know exactly all the elements necessary to determine the tax liability (the tax on dividends, interest or income from gambling). Viewed in terms of how income subject to taxation is aggregated or not, imposition may be an individual (separate, partial) or global: imposing separate income tax implies person pays a tax for each category of income he/she earns; global taxation, where the income earned by a person in a certain period of time, from several sources, is aggregated and a global income tax is calculated. The goal of imposing process is to identify the taxable object for each taxpayer, an accurate evaluation of the base and setting the amount of tax liability. All this must be established and recorded in some specific documents that serve as information support or imposition instruments. They have various forms for each tax, are different depending on the methods of taxation, on the nature of tax, or the category taxpayers (individual or legal persons). In principle, taxes, fees, contributions and other amounts owed to the general consolidated budget are highlighted in the following fiscal or administrative documents: tax returns prepared and filed by the taxpayer to the tax authorities; tax decisions issued by tax authorities. Tax returns are documents that serve to inform tax authorities regarding: taxes, fees and contributions due; value of goods and taxable income, where the tax is calculated by the tax authority; taxes collected through withholding at source if the payer is required to calculate, withhold and pay taxes. Tax decision is issued by the tax authority whenever it modifies the tax base. Tax decision is issued, if necessary, even when no decision has been issued on the tax base.

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But there are two situations where tax bases are determined separately by the decision on the tax base: a. when the taxable income is realized by many people. In this case the decision includes the allocation of taxable income for each person who participated in the creation of income. b. when the source of taxable income is outside the jurisdiction of the competent tax authority. In this case, the fiscal body in whose territorial jurisdiction is earned the income, relevant in determining the tax base, will forward the decision to tax authority competent to issue the tax. The following administrative documents also serve as decisions: decisions on reimbursement of value added tax; decisions regarding refunds of taxes, contributions and other general government revenues; decisions on the tax base; decisions on complementary payment obligations.

2.1.3. The tax authorities

Tax authorities are all the institutions through which the state achieves the following objectives: tax files record and management; preparation and submission of tax returns; collect budget receivables; fiscal control; resolve tax appeals against tax administrative acts; taxpayer assistance. These objectives are achieved through the central and local structures of Ministry of Public Finance, which is organized and operates as a specialized central public administration institution, subordinated to the Government, and applying the strategy and the program of governance in public finance. Subordinated to Ministry of Public Finance is National Agency for Fiscal Administration (NAFA), which has responsibility for enforcement of legislation on taxes, fees, contributions and other State budget revenues as well as other revenue of central

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public authorities and institutions of the European Community, administration of which is conferred by laws and conventions, except revenue due to customs. The tasks entrusted to NAFA are: improve the unitary application of the tax legislation; fair treatment of all taxpayers; increasing efficiency in collection of taxes; improving performance in tax management; improving relations with taxpayers. As an institution responsible of tax control, NAFA is assigned to the following tasks as well: immediate and unrestricted fiscal control, in accordance with law; applies to taxpayers, as a result of control, measures for compliance; applies the penalties according to legislation, within its competency; approves facilities, according to legislation, refunds and compensations for taxes, fees, social contributions and other budget revenue, for which has authority; tracks and take legal enforcement regarding state aid in its field of activity, for which has authority; applies the enforcement procedures and precautionary measures for witch has jurisdiction according to the law. At central level, National Agency for Fiscal Administration has within its structure the National Customs Authority and the Financial Guard, which are organized and operate as specialized bodies of central public administration, with legal personality, subordinated to the Ministry of Public Finance, as a structure of NAFA. The Financial Guard exercises operational and unannounced control, with the exception of fiscal control, in order to prevent, detect and combat all acts and activities that can lead to tax evasion and fraud. Another institution with responsibilities in taxation is the State Treasury, with its central and local offices, with the main objective of collecting public revenues based on a strict accounting for each payer, showing payment obligations and payment flows and remaining fiscal debts. This institution has the obligation to implement the preventive financial control over the tax collection within the deadlines and to apply late payment penalties for those who fail to comply within these deadlines established in law.

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The collection of revenues is achieved with the help from other entities, such as courts, public notaries and other institutions that charge fees for various services rendered to the taxpayers. In conclusion, we consider that the tax authorities are simply the means through which the State implements the fiscal laws, meant to, through taxation, to pursue, on the one hand, the budget revenues and on the other, to prevent and combat tax evasion.

2.2. Classification of tax systems

The classification of tax systems is a necessity both on theoretically and practically grounds. The criteria used may be either the nature of prevailing taxes in the tax system, and, in this context, we have the single tax or multiple taxes systems or systems with predominance of direct or indirect taxes, either the tax burden characterizing the diversity tax systems. According to the views that were the basis for shaping the tax systems, they are classified as1: a. tax systems based on utopian view; b. tax systems based on functional concepts; c. Technical projective tax systems. a. tax systems based on utopian view are theoretical proposals whose central idea was the institution of the single tax and they started from: the belief that it is possible to standardize tax levies, in the times when the efforts were directed towards introducing a single system of measuring time, length, a single currency in the process of formation of states; the influence of different theories sought to explain the formation of income; the necessity to eliminate the large number of taxes levied unfairly. Although the single tax is considered by many as a utopia, it remains, however, a complex notion. This concept is often used in particular meaning, i.e. to search for a single tax base, which will prevent the aggregation of many taxes that increase the tax burden. The recent expansion of sales taxes is an expression of this desire, on the one hand, to eliminate or greatly reduce the number of direct taxes and, on the other hand, to replace them with a general tax on consumption. But the most frequent criticism concern the tax
1 Corduneanu Carmen, op.cit., p. 67-70.

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rate which, by definition, is intended to replace all other taxes, which involves choosing a very high level of taxation to guarantee the tax revenues at least equal to those acquired through taxes that would be replaced. However, not all the authors argue against the single tax. Many of the supporters of the single tax mean by uniqueness only a process intended to simplify the tax system or to relief some of the tax burden. b. tax systems based on functional concepts take into consideration their dominant characteristics. Classification can be done in two ways: by the nature of prevailing taxes and by the intensity of tax burden. b1. According to the nature of prevailing taxes can be identified: tax systems prevailing in direct taxes, they include: rudimentary tax structures, ancient type, specific to the first administrative statebased entities; the tax systems of most developed countries, based on personal income tax and corporation tax. tax systems prevailing in indirect taxes specific to the emerging countries, former socialist countries, countries with economic crisis or military conflicts, countries whose economies tend to reach the developed status. In some tax systems are predominant the direct taxes, while others are predominantly indirect taxes. It is quite difficult to associate one or the other type of taxes with the degree of economic development of a country. The fact is that any state in distress regarding tax revenues will look upon indirect taxation, increasing the share of such taxes in difficult situations. The main advantages of direct taxes are equity, certainty, convenience, flexibility and unambiguous incidence and the disadvantages concern complexity, increased compliance cost, tax evasion, disincentive effects for work, investing or saving, and resistance from the taxpayer. On the other hand, indirect tax advantages are the universality, the limited possibility of evasion, optional nature, flexibility, simplicity and low compliance cost. The main drawbacks lie in their regressive nature, inflationary effect and distortion of consumer preferences. predominantly complex tax systems, characterized by similar proportions of direct and indirect taxes in total tax revenue in certain periods of time. These are specific

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to developed countries, with balanced social and economic structures and socialdemocrat type political regimes. tax systems prevailing in general taxes, specific to the most developed countries, where are predominant the general taxes (personal income tax, corporate income tax, value added tax) and the fiscal system is highly organized. tax systems prevailing in specific taxes, characteristic to undeveloped tax structures, where taxes are imposed on certain categories of income, as lump sum taxes or ad valorem taxes, and to current emerging countries where direct taxes are levied on some significant types of income and the indirect taxes on some products designed to domestic consumption or export. b2. According to the tax burden level, one can identify: high tax systems, characteristic for developed countries, where the participation of public capital versus private capital into the real economy is weak, and public services are extensive. Although they do not satisfy the conditions above, because of the existence of transitional government bodies, major financial needs and the necessity of important reforms, the former socialist countries are characterized by high tax systems. For a tax system to be considered as heavy or high-tax must meet the following conditions: the share of tax revenue in total public revenue must be high (more than 8090%); large share of tax revenue in GDP (over 25-30%). Low tax systems, specific to underdeveloped countries, emerging countries and tax havens where tax revenue share in GDP is lower (10-15%). If the tax burden is taken as a criterion for identification of tax systems, it must be completed with the distribution of different types of tax levies within the tax system, which is considered to be the decisive factor in the typology of tax systems. In terms of this distribution, the predominance of direct taxes is generally regarded as the main feature of taxation in developed countries. A constant feature of emerging countries is lower tax burden, combined with the predominance of indirect taxation. The factors that shaped the fiscal development consists in a series of obstacles related both to historical causes, economic and sociological causes. The uncertainty regarding tax resources is further

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exacerbated by widespread tax evasion that a weak and often compromised administration is not able to limit. c. Technical projective tax systems give substance to theoretical works and government projects, which approaches the future of tax structures and are aimed at improving the current tax system in line with the dynamic development of economic and social structures in terms of ensuring the resources necessary to fund social needs of communities and to achieve equity and efficiency in taxation. The aim of these theoretical projections is to develop such a tax structure able to ensure a more equitable distribution of tax levies among the subjects in the economy, while reducing distortions they cause, to eliminate the risk of social confrontation and to ensure consistent sources of funds for the public needs. However, the design of such a tax system requires an analysis of the elements and the relations within the system, the factors of influence and how the tax system can be modeled in order to achieve certain predefined parameters. In the context of improving the tax systems, we consider that the process of modernization, in the current stage, is characterized by: a shift from analytical taxes, levied only on one element of the taxpayer, towards synthetic taxes, determined according to an economic variable considered entirety, which belongs to the taxpayer (global income, turnover, net wealth); adoption of new methods of imposing and collection of taxes; increase tax yield; the use of taxes to achieve some specific policy objectives.