Minimum Wages and Lower VAT

2016 brings additional fiscal measures, such as raising the minimum wage in May, and lowering the VAT from 24 to 20%.

Mihai Pelin, 31.12.2015, 13:42

In its last sit down for the year, the Romanian government raised the minimum wage to the equivalent of 276 Euro, a measure to come into effect on 1 May 2016. Trade unions and employer associations agreed on this decision, previously endorsed by the Social and Economic Council. The bill will have a major social impact, according to experts, raising the standard of living and reducing social inequality. Official data shows that no less than 1.1 million people will benefit, at least 40,000 of them state employees. Government spokesperson Dan Suciu said that this increase should be followed by additional measures, in order to prevent layoffs and a slowdown in business.

Dan Suciu: “We do run this risk. We wanted to reduce risk in the first place, but we believe that in these intervening months in which businesses will take advantage of the new fiscal environment, coming into effect on January 1, they will be able to find the resources to integrate this salary raise without significant collateral damages.

In addition to raising the minimum wage, another important fiscal measure for next year is the drop in the VAT rate from 24 to 20%. At the same time, starting on January 1st, the tax rate will drop from 9 to 5% for cinemas, museums, book deliveries, textbooks, newspapers and magazines, as well as for other sports and culture events. The VAT will stay at 9% in 2016 for pharmaceuticals, hotels, food, restaurants and catering, as well as for water supply. The drop in the VAT will lead to lower prices, at least in theory, in the first part of 2016, after 2015 has brought about negative inflation after a lower VAT was applied to food.

This rate may also contribute to lower prices for gasoline and diesel, but this depends on foreign markets, to the extent that the state still applies fairly heavy excises, one of which being supposed to be scrapped in early 2017. The taxes charged by the Romanian state account for about half the domestic fuel price. 2016 also brings about a 5 to 6% drop in the price of electricity, a reduction in dividend tax to 5%, but also more expensive auto insurance and property taxes. In 2016, banks in Romania will have to report to the fiscal authorities, on a daily basis, the entities that open or close a bank account of any kind, as well as any significant activity related to safety deposit boxes.