Nicolescu: TVA increase will slow down national economy recovery

A possible TVA increase will extend the recovery process of the national economy following the present crisis, Ovidiu Nicolescu, the chairman of the National Council of Small and Medium Private Companies in Romania. "A VAT increase would only slow down economic growth and would extend recovery processes," Nicolescu said. He added that the business environment is in difficulty to choose between VAT increase and tax on profit increase. "The increase of VAT would also mean giving up one of the few advantages Romania had to attract foreign and local capital.

The government should rationalize budget expenses", Nicolescu said. The Council reaction comes as a result of president Traian Basescu's statement about VAT increase. The president told businessmen at the Romanian Economic Forum that he preferred the increase of VAT as of 2010.Cezar Coraci, head of the UGIR-1903 employers union, said on Tuesday that consumers would be the first to feel the effects of a VAT increase. He said in the case of a 3% VAT increase prices may rise as high as 5% and the business environment would feel a negative impact indirectly.

For his part, Florin Pogonaru, head of the Association of Romanian Business People (AOAR), said business people are forced to consider a VAT increase in their budget calculations especially following the officials' statements in this regard. He said these statements showed that the economic situation was worse than presented and that the Government was making concessions with trade unions - which needed to be compensated.Pogonaru said the most important effect of a VAT increase would be rising prices during a period of economic instability. And the Social Democratic Party - who withdrew from the government last week - said it rejected the option to increase VAT. "It is a bad and risky measure which would blow up the whole country", Mihai Tudose, head of the Economic Commission in the House of Deputies,said.

Finance minister Gheorghe Pogea said on Tuesday, quoted by NewsIn news agency, that the Government may consider a "reform of income", suggesting that VAT might increase while the 16% flat tax would be maintained at the current level. Also on Tuesday, Government sources admitted for HotNews.ro that the issue was subject of lively debate at the Government headquarters.

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