Higher VAT considered - to cover budget expenditures

Publish date: 07-10-2009
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The Government is considering augmenting the crisis budget by reforming the 2010 revenues while keeping the flat rate corporate profit tax and income tax. A decision on increasing the VAT is not excluded either.

According to Hotnews.ro, official Government sources admit that increasing the value-added tax is an extensively discussed subject in the corridors of the Victoria Palace. 'We may also consider reforming the revenues, because Romania has one of the lowest levels of the public revenues as a share of its GDP, of approximately 31.8 per cent, unlike all other states in our region, where the proportion is up to 40 per cent. We will need to do this fiscal consolidation and, if we must take one of the measures, we will keep the flat rate tax, the profit tax and the income tax, because they have improved the voluntary payment of dues and stimulated investment. If one of the taxes, especially VAT, shows a deficit, we will make that public,' said Minister Pogea.

However, he pointed out that the draft budget for 2010 had not been built upon a higher VAT up to that moment. 'For the time being, the 2010 budget is being constructed in this way, and we will see if the committed deficit can be sustained by the current revenues and current taxes. We believe we will be able to take the other measures that can adjust expenses and keep the deficit below 5.9 per cent as we promised to', the minister said.

PM Emil Boc denied on Tuesday evening the rumours of increasing the VAT, stressing that during his talks with the employers' associations the government confirmed it would keep the flat tax at the same level of 16 per cent. "We haven't discussed about VAT increase within the executive, not outside it, or even for the draft budget law. We do not have envisage such a decision," Boc said.

According to 'Ziarul Financiar'-quoted sources, during some private talks with foreign investors, President Traian Basescu admitted to the possibility of a higher VAT being introduced in 2010. He reportedly said he preferred a higher VAT over renouncing the flat rate tax. 'Irrespective of the IMF pressure, the flat rate tax is untouchable,' said the president, according to a participant in the debate. The head of state also said, according to the same sources, that the VAT could be increased by only a few percentage points.

The VAT increasing measure has been taken by the majority of states that have been severely hit by crisis, including Hungary and Ukraine. The VAT holds the second largest share in the state's revenue - 21.6 per cent - after the social security contributions representing 31.5 per cent of the total. Increasing the VAT would affect consumers as it would put in motion a snowball effect on all goods prices and service tariffs. If consumption remains at the 2009 level, each extra percentage point to the value-added tax would bring an extra EUR 80 M to the budget. There are economic analysts saying that the VAT may be increased by 3 per cent.


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