The effective tax rate is also the highest in the region for a gross salary of 1,000 euros, the region's average being 27%.
"As a result of the transfer of social security contributions to the employee and the increases of gross minimum wage, including the one announced for December 1, 2018, Romania has exceeded the minimum gross wage average in the region of 421 euros, surpassing five states. But the other 10 countries have lower effective tax rates, the average being 21% compared to 41.5% in Romania," says Raluca Bontas, Partner Global Employer Services, Deloitte Romania.
Deloitte Romania's analysis, based on the calculations provided by Deloitte member firms, includes Romania, Bulgaria, Serbia, Croatia, Hungary, Slovakia, Czech Republic, Poland, Estonia, Lithuania and Latvia. For this analysis, the value of the gross minimum salary taken into account for Romania is of 2,080 RON, the value announced by the government to enter into force in December 2018.
"The Romanian employee receives less of his labor output than in other states in the region, the income tax and the social contributions to the public budget being higher. Therefore, we might expect that high taxation would also reflect in a higher quality of life as the employee invests more in public education, health, infrastructure etc. However, the world rankings in this respect show the opposite, with low efficient public spending. For example, the study conducted by the NGO Progress Imperative Social, with Deloitte’s support - the Social Progress Index, that measures the quality of life and the well-being of citizens - places Romania on the 44th place among 146 countries, following all the other EU member states. Such data makes us understand easier the phenomenon of labor migration and the need for inter-related measures that can reverse this trend," says Raluca Bontas.
The main findings of the analysis
- Gross minimum wage ranges between 500 euros (Estonia) and 261 euros (Bulgaria), the average being 421 euros.
- Estonia has the lowest effective tax rate of gross minimum wage (4%), followed by Lithuania (10%) and the Czech Republic (14%). Romania has the highest effective tax rate, of 42%, the average being 21%.
- The effective tax rate of a gross salary of 1,000 euros is the highest in Romania (42%), Hungary (34%), Latvia (29%), and the lowest in Estonia (13%), Bulgaria (22%) and Lithuania (23%).
- Romania has the lowest contribution rate due by the employer (2.25%), the average being of about 23% in both scenarios.
"When we talk about wages, we usually refer to their gross value. Thus, Romania does not look bad at all, with a gross minimum salary increased by about 41% over the past two years. It is a positive evolution compared to the average of the region. Unfortunately, if we take into account the effective tax rates, the net minimum wage in Romania is at the bottom of the same ranking. That means that, at the end of the month, the Romanian employee takes home the lowest amount, after tax, comparing to his colleagues from the countries in the region. It is true, as well, that the cost of the employer is by far the lowest in Romania, but they have no impact on the employee. However, in both situations - the gross salary and the total salary cost - Romanian taxes and contributions to public systems outweigh significantly the region's average," explains Monica Tariuc, Senior Manager Tax, Deloitte Romania.
Romania versus Bulgaria
"Even if we refer to Serbia and Bulgaria, compared to which Romania has a significantly higher gross minimum salary (over 50%), we find that the percentage is less than half for the net salary", commented Monica Tariuc.