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Romania VAT rise risk

Doubts on budget gap discussions with EU puts VAT rise into play

Update 19 Sept: draft law includes a number of measures including VAT on sugary products to avoid a standard VAT rate rise. Proposals for sweeping pubic spending cuts are included.

The Romanian coalition government has deferred again a final budget as its risks losing EU funding due to potential non-compliance with deficit targets.  A potential, temporary VAT rise is one of the measures under review. The European Commission on June 30 sent Romania a notification requesting the country to curb its budget deficit, or else part of the cohesion funds would be suspended,

But the Prime Minister, Marcel Ciolacu, does not think it is “appropriate to levy new taxes” during an ongoing economic crisis.

Romania’s standard VAT rate is currently 19%

If Romania fails to keep its budget to 4.4% of GDP this year, the triggers possible withholding of EU support funding. As an alternative potential solution, the governing coalition has discussed the possibility of removing exemptions for health contributions.

On September 14, the government failed to endorse the fiscal package and furthermore split it in two, with part of the measures still subject to debates in Parliament.

The EU’s  European Commission accepted the package of measures proposed by the government but requested additional measures to ensure the reduction of the deficit by increasing revenues.


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