Taxes are expected to rise in 2010

Publish date: 29-09-2009
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Increasing the value-added tax (VAT) and the flat tax in 2010 is "inevitable" to meet the budget deficit targets agreed upon with the International monetary Fund (IMF), according to a report by the Economist Intelligence Unit.

The report warns that such a measure would have a negative impact on consumption expenses, and that staff downsizing in the public sector continues to be necessary. Minister of Public Finance Gheorghe Pogea, said that, "considering the current macroeconomic framework and forecasts by the National Prognosis Commission for 2010, MFP [Finance Ministry] is considering maintaining the flat tax and VAT ratios."

But local analysts interviewed by Business Standard tend to expect higher taxes, as the government failed to cut expenses sufficiently. European Union countries, such as Hungary and Spain, pressured by declining revenues, have recently decided to raise VAT, following the example set by the Baltic countries early this year.

"The government set some measures with the European Commission to narrow the budget deficit to six percent of gross domestic product (or 6.5 percent of GDP according to EU methodology) in 2010, compared to the initial agreement, which indicated a target of 3.6 percent of GDP. The agreement stipulates that the government make significant cuts in public sector salaries. It seems inevitable that the government will be forced to raise VAT or income tax to meet these targets, in spite of the negative impact that the measure will have on consumption expenses," said the EIU report, quoted by the NewsIn agency.

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