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Romanian MPS Finally Reach Agreement On VAT Rate Cuts
After being approved and then rejected by the President, Romania this week finally achieved cross-party agreement on the extent of VAT cuts; it will drop to 20% from next year, and to 19% from 2017. Romanian lawmakers agreed to shave 4.4 billion lei ($1.1 billion) off planned tax cuts, amid worries the proposals may blow a hole in the budget next year.
The original package included a cut in value added tax to 19% from 24%, as well as reduced levies on fuel and dividends. However, MPs across parties agreed to cut VAT to 20% from next year and to 19% from 2017.
The European Commission, International Monetary Fund, and Romania’s own central bank and Fiscal Council watchdog had all raised concerns over the scope of the initial proposed tax cuts. To address those concerns, the MPs agreed to cut VAT in steps and delay lowering excise tax on fuels until 2017.
The Prime Minister believes the cuts will help to boost growth and fight tax evasion.
Impact of the VAT change
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Our experts say...
Romania once held the second-highest rate in the region (after Hungary’s 27% rate) but this reduction brings its VAT in line with its neighbours. It will be interesting to see whether this decrease will ultimately lead to an increase in consumption, better compliance and economic growth.