Fighting tax evasion in the bread industry

The police started a campaign to fight tax evasion in the bread industry, after on September 1st the VAT on bread was cut from 24% to 9%.

Leyla Cheamil, 24.09.2013, 13:14

The Romanian Government headed by Social Democrat Victor Ponta announced this summer a number of measures designed to curb tax evasion and increase revenues to the state budget. One of those measures, implemented on September 1st, was to cut the VAT on bread from 24% to 9%, given that tax evasion reached 80% in the companies in the sector. The Prime Minister announced, just days after the measure had taken effect, that some 75-80% of the companies in the sector had reduced bread prices by 15%, and that small producers generally maintained the same prices.

Few companies applied price rises. The negative impact of reducing the VAT on bread had been estimated at 100 million lei, but this will be offset by increasing excises on spirits and luxury products, a measure implemented in the same period. However, Finance Minister Daniel Chitoiu said recently that the negative impact of the VAT cut would be a lot smaller than initially estimated. Data from the Competition Council indicate that the effect was a roughly 6% drop in the end-price of bread, which is why returns from producers and in the retail area have grown.

The police have carried out hundreds of inspections in the companies that produce and trade bread products and checked their accounting records, particularly those concerning the procurement of raw materials. In Bucharest, one of the tricks the most commonly resorted to by tax dodgers is that producers do not record the exact number of loafs of bread they produce, and retailers do not issue receipts for the sale. Moreover, the policemen who have checked several bread factories have found irregularities by checking the companies’ natural gas invoices.

More precisely, some plants had used in certain months larger amounts of gas, which indicated a larger bread output than they had declared for tax purposes. Traditionally, bread has been a key product in Romanians’ diet. However, in July Agriculture Minister Daniel Constantin said that according to official data, Romanians eat less and less bread. Whereas in 1999-2000 the national bread consumption was 1.8 million tons, in 2010 the consumption was only 558,000 tons.