"Under the new law, failure to pay fiscal duties, avoiding declaring income or hiding sources of income will be punished with jail terms of two to seven years," Financial Guard boss Gica Danila said last week.
Romania's parliament endorsed the tax evasion law early in October. President Ion Iliescu announced it this week.
Tax-dodging was not a crime under the communists, who were ousted in Romania's bloody 1989 revolution. "There was no need for such a law during that period because the state owned 99.99 percent of economic activities and there was virtually little or no fiscal evasion," a Finance Ministry source said.
"This law is very important and it is highly necessary in Romania's new free-market context. It will put due revenues into the state budget," Danila said.
Recent Finance Ministry data showed that detected tax evasion had risen five-fold in one year -- to 650 billion lei ($371.2 million) in the first six months of this year from 125 billion lei in the same period of 1993.
The ministry said private companies and individuals accounted for only 18 percent of the value of detected tax-dodging in the six months to June.
"This means the state-run sector is the worst tax dodger," a local economist said.
Romania has a 45 percent tax on company profits, a wage tax of up to 60 percent and value-added tax levied at a single 18 percent charge on goods and services.
"This law puts Romania in line with other democratic countries in Europe. So far, we were the only European country which punished tax evasion by fines," Danila said.
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