Lower VAT in Romania

As of June 1st, the value-added tax on foodstuffs, non-alcoholic beverages and food industry services in Romania will be cut from 24 to 9%.

România Internațional, 08.04.2015, 13:37

As of June 1st, in Romania, food products, non-alcoholic drinks and restaurant services should be cheaper. The Government decided on Tuesday to slash the VAT from 24 to 9% for these categories, six months before the new Fiscal Code takes effect. PM Victor Ponta says the measure will encourage domestic producers to charge competitive prices. An argument for the early introduction of this measure was that in Romania, food costs account for the largest share of a household’s expenses of all EU countries, the PM explained. Victor Ponta:

“Although we have smaller incomes, we have food prices equal to those elsewhere in Europe, so 32% of a family’s budget goes on food. This 15% VAT reduction, in force as of June 1st, will reflect on prices.”

The PM called on the Agriculture Ministry and the Fiscal Administration Agency to check whether the VAT reduction will influence prices. As for the sustainability of the measure, Ponta argues that the annual impact on the state budget, of 1.1 billion euros, may be covered from the additional revenues to the budget reported in the first quarter of the year. Apart from smaller prices, the Government says that the VAT reduction will help fight tax evasion and create a fair competition environment.

Moreover, the drop in prices may boost consumption, which will result in higher revenues to the state budget. The Liberals, in Opposition, support the measure, but believe the Government is not ready to implement it. The National Liberal Party points to the low collection of taxes, the under-performance of the fiscal agency, which blocks small businesses, and the absence of an impact survey regarding the policies introduced by the Government. Here is the vice-president of the National Liberal Party, Catalin Predoiu:

“What we want is for such economic measures to produce positive effects. But judging by the signals we’ve had over the past few days, there are questions regarding the ability of the Government to implement this measure at this time. We’ve seen the very well argued opinion of the Fiscal Council, and also the call for prudence from the Governor of the National Bank, who said, and I quote from memory, ‘It is worse to introduce a good measure and then scrap it if it hasn’t been properly prepared, than not to introduce it at all’. We’ve seen the very clear and unambiguous signals from the International Monetary Fund and the European Commission.”

The Government also announced that as of January 1st, 2016 it will also reduce the standard VAT rate for all the other products and services, from 24 to 20%, whereas the 9% VAT rate for bread, introduced in September 2013, will remain valid.