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Tag: VAT

  • Minimum Wages and Lower VAT

    Minimum Wages and Lower VAT

    In its last sit down for the year, the Romanian government raised the minimum wage to the equivalent of 276 Euro, a measure to come into effect on 1 May 2016. Trade unions and employer associations agreed on this decision, previously endorsed by the Social and Economic Council. The bill will have a major social impact, according to experts, raising the standard of living and reducing social inequality. Official data shows that no less than 1.1 million people will benefit, at least 40,000 of them state employees. Government spokesperson Dan Suciu said that this increase should be followed by additional measures, in order to prevent layoffs and a slowdown in business.



    Dan Suciu: “We do run this risk. We wanted to reduce risk in the first place, but we believe that in these intervening months in which businesses will take advantage of the new fiscal environment, coming into effect on January 1, they will be able to find the resources to integrate this salary raise without significant collateral damages.



    In addition to raising the minimum wage, another important fiscal measure for next year is the drop in the VAT rate from 24 to 20%. At the same time, starting on January 1st, the tax rate will drop from 9 to 5% for cinemas, museums, book deliveries, textbooks, newspapers and magazines, as well as for other sports and culture events. The VAT will stay at 9% in 2016 for pharmaceuticals, hotels, food, restaurants and catering, as well as for water supply. The drop in the VAT will lead to lower prices, at least in theory, in the first part of 2016, after 2015 has brought about negative inflation after a lower VAT was applied to food.



    This rate may also contribute to lower prices for gasoline and diesel, but this depends on foreign markets, to the extent that the state still applies fairly heavy excises, one of which being supposed to be scrapped in early 2017. The taxes charged by the Romanian state account for about half the domestic fuel price. 2016 also brings about a 5 to 6% drop in the price of electricity, a reduction in dividend tax to 5%, but also more expensive auto insurance and property taxes. In 2016, banks in Romania will have to report to the fiscal authorities, on a daily basis, the entities that open or close a bank account of any kind, as well as any significant activity related to safety deposit boxes.

  • The latest developments in Romanian economy

    The latest developments in Romanian economy

    The National Bank of Romania has given assurances that Romania does
    not face the risk of deflation. The annual inflation rate dropped to minus 1.9%
    in August compared to minus 1.7% in July, thus reaching its lowest level in the
    last 25 years. According to the National Institute for Statistics, this is the
    third consecutive month to report a fall in the inflation rate. Food products,
    in particular eggs, sugar, potatoes and corn flour, saw the highest decrease in
    prices, which dropped by more than 7% in August compared with last year.






    Analysts say the negative annual inflation rate is largely the
    result of the reduction in the VAT for food products. This downward trend may
    continue until May 2016 following the cut in the VAT rate for food in effect
    since June and in the standard VAT rate to 20% starting next year. The fall in
    the inflation rate has been more abrupt than expected by analysts, who also say
    the inflation rate will not come back to the target set by the National Bank of
    Romania before 2017.






    The figures confirm the bank’s forecasts for this summer, according
    to which the inflation rate will remain negative over the next three quarters.
    Despite this, the governor of the National Bank Mugur Isarescu says Romania
    does not risk going into deflation because there is no inflationist pressure as
    a result of an increase in public sector salaries and because consumption has grown
    and may even reach 10% by the end of the year. While not entirely reflected by
    prices, the VAT cut for food and drinks will in time lead to a growth in
    consumption and give a new boost to economic growth, the government hopes.






    The National Commission for Prognosis recently improved economic
    growth figures for 2015 from 2.8 to 3.3% and says the pace of growth may pick
    up even more in the coming years to reach 4% by 2018. The European Commission,
    the World Bank and the European Bank for Reconstruction and Development
    estimate that the economy will grow by over 3% on an average in the next few
    years. Romania had one of the highest economic growth rates in the European
    Union in the second quarter of 2015 compared with a similar period in 2014. Its
    good economic growth rate, low inflation, stable leu-euro exchange rate and low
    public debt make Romania a possible destination for foreign investors.






    Next to Malta and the Czech Republic, Romania has seen the highest
    annual economic growth rate in Europe. In the second quarter of the year,
    Romania’s economy grew by 3.7% compared with the similar period last year,
    while Malta’s economy grew by 4.8% and the Czech Republic’s by 4.4%.



  • New Fiscal Code Passed by Senate

    New Fiscal Code Passed by Senate

    Supported by its initiators, the left-wing Government in Bucharest, but criticised by both the business community and the countrys international lenders, the new Fiscal Code stands great chances of being endorsed next week, when it could go to President Klaus Iohannis for promulgation.



    In a first stage, the President sent it back to Parliament, warning that a sudden fiscal relaxation would jeopardise the budgetary balance. Through a rare consensus in the Romanian politics, Power and Opposition agreed on a new formula to enforce the Code, one that would not affect the budget but that would encourage economic growth at the same time. The VAT reduction to 20% would therefore be implemented as of January next year, and a further cut, to 19%, will be operated in January 2017. Also postponed for 2017 is the elimination of an additional excise duty on fuels and of a tax on special structures.



    The Social Democratic Senator Constantin Popa believes the endorsement of the Fiscal Code to be a landmark for the Romanian economy:



    Constantin Popa: “It is a major step forward for the Romanian economy and for Romanians in general, it is a moment when taxes and charges are cut down, so I should say this is a starting point from where we can move forward with more determination.



    The Liberal Senator Dinca Marinica says the greatest strength of the Code is that it does away with the legislative ambiguity and brings together several laws into one text.



    Dinca Marinica: “This Fiscal Code regulates all the types of taxes and charges in a way that makes them coherent. A lot of voices, particularly coming from the business community, have complained over the years that we have too many taxes and this hinders the development of companies and of the economy in general, while at the same time affecting the State Budget and the local budgets.



    On the other hand, the Government says it will implement some of the measures in the Fiscal Code ahead of the agreed deadline, based on the revenues to the state budget in the first 8 months of the year. PM Victor Ponta explained that revenues increased considerably after the VAT for foodstuffs was cut down to 9% and contributions to the social security fund were reduced, and that one of the reasons for this development is the improved activity of the National Tax Administration Agency. According to the Prime Minister, the Romanian economy is responding to the controlled tax reduction and to a more efficient activity of the Tax Agency, and in the first 8 months of the year the budget collected 2.5 billion euros more than in the corresponding period of the previous year.

  • Positive economic developments

    Positive economic developments

    Early June has brought good news for Romanians. On the one hand, president Klaus Iohannis has signed the law doubling child benefits, from a little above 9 Euros at present, to 18 Euros. This year alone this law will incur expenses of 200 million Euros from the state budget. On the other hand, the new law providing for a slash in the VAT for foodstuffs, from 24 to 9%, came into force. Prime Minister Victor Ponta gave assurances that there will be no negative impact on the budget. He argued that both measures were made possible due to an increase in productivity and progress in collecting tax revenues.



    The Labour Ministry is currently working on a law package to pay child benefits according to each familys income. Due to be made public in September, that draft law has already sparked controversies linked to its discriminatory nature. With the slash in the VAT for foodstuffs, large department stores have lowered their prices, displaying both the price prior to the slash in VAT and the new price. Analysts estimate that the slash will not leave extra cash in peoples pockets, but the government hopes it will boost consumption and stimulate economic growth.



    According to the latest economic forecasts, Romanias economy is also expected to grow beyond the estimates made in early 2015. The upward trend of the economy will in turn trigger positive economic prospects for 2015 and the years to come. The National Forecast Committee has recently upgraded its economic growth estimate for 2015, from 2.8% to 3.3%. The growing pace of the economy might lead to a growth rate of 4% in 2018. The European Commission, the World Bank and the European Bank for Reconstruction and Development estimate that the economy will grow by over 3% on average in the following years, as compared to their initial 2.5 – 2.8.% estimate.



    In the first quarter of the year, the economy grew by 4.3% more compared to the same period of last year. Interest rates in the national currency plummeted, which triggered an increase in the revenues and bigger consumption figures. The car market has also recovered, with truck sales going up by over 20% in the first months. The slash in the value-added tax for foodstuffs will increase consumption, due to a 12% drop in prices for foodstuffs, and will generate an 0.5% increase of the GDP.

  • The Week in Review 11-15 May 2015

    The Week in Review 11-15 May 2015

    Romanian President Klaus Iohannis pays an official visit to the Vatican and Italy.

    On a 3-day official visit to Italy and the Vatican, the Romanian head of state, Klaus Iohannis, was received by Pope Francis on Friday, whom he invited to pay a visit to Romania. On Thursday Iohannis visited the Universal Exhibition in Milan dubbed “Feeding the Planet, Energy for Life”. On Thursday evening Iohannis met with representatives of the Romanian community in the city, on which occasion he voiced his dissatisfaction with how the voting by mail project advances. This is the Romanian president’s second official visit to Italy, after the one in April 2014, when he met with his counterpart Sergio Mattarella, PM Matteo Renzi and the Senate Speaker Pietro Grasso.



    Economic forecasts for Romania.


    Romania and Cyprus had the most substantial economic growth in the EU in the first quarter of the year, as compared to the previous three months, according to preliminary estimates released on Wednesday by the European Statistics Office. In figures, thanks to a 1.6% growth rate, the two countries are the EU leaders, followed by Spain, Bulgaria, Slovakia, France and Hungary. The year-on-year rate Romania has reported, 4.2%, is also the largest in the EU, followed by Hungary, with 3.1%. Also this week the European Bank for Reconstruction and Development has improved Romania’s economic growth forecast this year up to 3% from 2.8% in January. For 2016 the European Bank for Reconstruction and Development estimates that the Romanian economy will advance by 3.2%, one of the highest growth rates in the emergent Europe.



    Romanian senators green lighted the VAT decrease on foodstuffs.


    The reduction of the VAT for foodstuffs as of June 1st was green-lighted by the Romanian senators. The measure is aimed at reducing the VAT from 24% to 9% for all foodstuffs, non-alcoholic drinks, and restaurant and catering services. Seen by the executive as a way to encourage consumption and implicitly to consolidate the growth trend reported by the Romanian economy, the measure was regarded with skepticism in terms of the significant drop in shelf prices it was supposed to produce. The calculations presented by the Agriculture Ministry point to a drop in prices for foodstuffs of about 12%. Most Romanians believe that the reduction of the VAT for foodstuffs and non-alcoholic drinks is a good measure both for them and for the economy, shows an opinion survey made by INSCOP.



    The Romanian Foreign Minister’s proposal at the NATO meeting in Turkey.


    Attending the NATO Foreign Ministers meeting in Turkey, Romanian Foreign Minister Bogdan Aurescu recommended an integrated strategy targeting both NATO’s southern and eastern vicinities. Bogdan Aurescu pointed out that given the challenges to the Alliance’s security, all decisions taken at the NATO summit in Great Britain should be implemented. The recommendation comes against the backdrop of mounting instability in Northern Africa and the Middle East over the course of last year, which is affecting the entire Europe. The NATO foreign ministers have decided at the meeting in Turkey to maintain the NATO presence in Afghanistan even at the end of its current mission, that is after 2016. The new NATO mission, expected to be smaller than the current 12,000-strong training operation, will be civilian-led and include both soldiers and civilians. Its aim will be to advise and instruct Afghan security forces. Over 600 Romanian military are currently deployed in Afghanistan.



    The Social Democrat Liviu Dragnea received a 1-year suspended prison sentence.



    Romanias regional development minister and deputy prime minister, the Social Democrat Liviu Dragnea, on Friday received a 1-year suspended prison sentence for using his influence and authority, as secretary general of the Social Democratic Party, with a view to obtaining undue benefits for himself and other persons. This means that Liviu Dragnea will not serve time in prison but he will be banned from holding public office. The decision can be appealed. Right after the sentence was delivered, Liviu Dragnea resigned from the Government and has announced he will also resign his position as executive president of the Social Democratic Party.


    According to the anti-corruption prosecutors, Dragnea, as his partys secretary general, organized a system by which local party members sent back real-time information about the turnout and the results, which is illegal before the voting deadline expires and he told local party members and mayors to use whatever means to swell the turnout.



    Romanian films in Cannes.


    The film “Head Up” by French filmmaker Emmanuelle Bercot, featuring Catherine Deneuve in the leading role, opened the Cannes Film festival on Wednesday. Over 50 productions have been included in the festival, of which 19 will compete for the Palme d’Or. 2 Romanian productions have been included in the Un Certain Regard section, namely, “The Treasure” by Corneliu Porumboiu and “One Floor Below” by Radu Muntean. Andrei Cretulescu’s short “Ramona” is also part of the competition.







  • VAT Reduction for Foodstuffs

    VAT Reduction for Foodstuffs

    An important part of an ambitious government program of fiscal
    relaxation, the reduction of the VAT for foodstuffs as of June 1st
    was green-lighted by the Romanian senators. The measure is aimed at reducing
    the VAT from 24% to 9% for all foodstuffs, non-alcoholic drinks, and restaurant
    and catering services. Seen by the executive as a way to encourage consumption
    and implicitly to consolidate the growth trend reported by the Romanian
    economy, the measure was regarded with skepticism in terms of the significant
    drop in shelf prices it was supposed to produce.

    The skepticism was fueled by
    the suspicion that hypermarkets augmented the prices in advance, to maximize
    their gains. According to the PM, it is the market that will regulate the
    situation, and a smaller VAT will be reflected by the products’ prices. The
    calculations presented by the Agriculture Ministry point to a drop in prices
    for foodstuffs of about 12%. The authorities’ optimism is shared by a large
    part of the population. Most Romanians believe that the reduction of the VAT
    for foodstuffs and non-alcoholic drinks is a good measure both for them and for
    the economy, shows an opinion survey made by Inscop Research upon order by the
    Adevarul daily. 34.5% of the respondents claim that smaller fees and taxes, as
    stipulated in the new Fiscal Code, mean less money for healthcare, education
    and infrastructure. However 39% of the respondents believe the opposite. Around
    27% do not have a clear opinion about the issue or refused to answer, which is
    indicative, according to the surveyors, of the lack of information or
    understanding of the economic and budgetary mechanism.

    According to the same
    survey 37.7% of the Romanians estimate that prices will be smaller, although,
    in their opinion, the drop in prices will not fully observe the VAT reduction.
    Around 33% of the respondents believe that prices of foodstuffs and
    non-alcoholic drinks will not decrease, while 19% believe the contrary. All in
    all, 57% of Romanians think the reduction of the VAT will be reflected in
    smaller shelf prices. The government’s decision to cut the VAT from 24% to 9%
    for foodstuffs and non-alcoholic drinks is preferred by 62% of the population,
    to the detriment of the idea of a general reduction of the VAT from 24% to 20%,
    which is favored by only 29% of the respondents. The survey was conducted
    between April 23rd – 30th on a number of 1,085 people
    with a plus/minus 3% maximum error.

  • The Week in Review 27 April – May 3

    The Week in Review 27 April – May 3

    President Klaus Iohannis pays a visit to Italy


    Romania’s president Klaus Iohannis paid an official visit to Italy, the country home to the largest Romanian community in the Diaspora. The president met with Prime Minister Matteo Renzi, who said that the members of the Romanian community in the Peninsula are well integrated, contribute to Italy’s economic growth and represent a bridge between the two countries. President Iohannis and Prime Minister Renzi also reviewed economic and cultural bilateral relations, as well as Moldova’s bid to join the European Union. In Rome, Klaus Iohannis met with his counterpart Sergio Mattarella and with Romanian students and scholarship beneficiaries with the Accademia di Romania, whom he congratulated for their excellent results. Klaus Iohannis said he would pay another visit to Rome on May 15, during his visit to the Vatican.



    The Romanian Senate endorses the Fiscal and Fiscal Procedure Codes


    The Romanian Senate has endorsed the Fiscal Code and Fiscal Procedure Code bills. The new codes are aimed at reducing taxation by eliminating certain taxes and duties, curbing tax evasion, boosting consumption and stimulating economic growth. Among the provisions in the code are the VAT reduction to 9% for foodstuffs starting June 1, and from 24 to 20%, as of January 1, 2016, for all goods and services. The new codes also provide for the scrapping of the special building tax and the 16% tax on dividends, and for reducing the flat tax rate from 16 to 14% starting January 2019. The opposition has criticized the Government’s measures, labeling them unrealistic. The new Fiscal Code is to be tabled to the Chamber of Deputies for debate, which holds the decision-making power in this case.




    Prime Minister Victor Ponta visits Strasbourg and begins tour of Gulf states


    Prime Minister Victor Ponta paid an official visit to Strasbourg, where he met with high-ranking EU officials. Talks focused, among others, on the economic context in Romania, in relation to European Commission president Jean-Claude Juncker’s investment plan. Victor Ponta assured Romania’s partners in the EU that Romania is a prime competitor in the region, after four years of economic growth. Also this week the Prime Minister began his tour of the Gulf area, with his first stop being Saudi Arabia. It was actually the first visit of a Romanian Prime Minister since diplomatic relations were set up with this country, 20 years ago. The tour’s main objective is to revitalize political and diplomatic relations and consolidate economic and trade relations. The Prime Minister will showcase business and investment opportunities in Romania, in such fields as constructions, infrastructure, agriculture, industry, energy, IT and healthcare.






    The Senate rejected the so-called “Big Brother” draft law


    The Senate in Bucharest rejected upon re-examination the draft law on cyber security, the so-called “Big Brother” law. It had been previously rejected by the lower chamber. The National Liberal Party, in the opposition, argued against this law in Constitutional Court in January. The court ruled that this bill was unconstitutional overall, lacking coherence, clarity, predictability, as well as having procedural gaps, since it lacked endorsement from the Higher Defense Council. The bill addresses, among other things, the retention of data generated by providers of public electronic communication networks, as well as by the providers of electronic communication services for the public.




    The Romanian economy should be prepared to join the Eurozone, according to National Bank governor, Mugur Isarescu


    Romania should prepare carefully to join the Eurozone, especially by eliminating sources that put great pressure on the economy, said National Bank Governor, Mugur Isarescu. According to him, before adopting the Euro in 2019, the Romanian economy should be prepared, because the standing exchange rate regime entails some risks. Thus, there is need for restructuring state companies and the energy market, as well as clarifications regarding co-financing from the state budget and developing road infrastructure. According to a recent study, the number of insolvencies has dropped in Romania in the first quarter of this year to less than half compared to the same period in 2014, even though the social and financial impact upon the economy was greater, considering that layoffs went up 24%.



    The 2015 car-scrapping scheme was officially launched


    Romania has kicked off the car-scrapping scheme for 2015. In exchange for scrapping a car older than eight years, owners get a voucher worth 6,500 lei, about 1470 Euro, which they can spend on purchasing a new car or transfer to another natural person. The amount allocated this year for the program is 200 million lei (about 45 million Euro), 33% more than last year, and the authorities expect 20,000 drivers to get new cars. In the ten years the program has been running, about half a million old cars got scrapped. In addition, the Ministry of Finance plans to change by June the emissions sticker for cars, in order to encourage the purchase of less polluting cars.


  • Romania has a brand new Fiscal Code

    Romania has a brand new Fiscal Code

    Romania urgently needed a new Fiscal Code, after the 2003 law was amended tens of times, forcing companies to change their business strategies with each and every amendment. The successive changes and the delays in publishing the secondary legislation generated the widespread perception that the principle of fiscal stability is breached in Romania, and discouraged foreign investors. Viewed by business operators and social actors as hard to enforce, the Romanian fiscal legislation had to be replaced altogether. On Monday the Senate of Romania endorsed the new Fiscal Code bill, which, says the Finance Minister Eugen Teodorovici, is primarily designed to simplify taxation.



    Eugen Teodorovici: “Clarity and accessibility in enforcing the Code provisions, transparency in presenting fiscal principles, enhancing the efficiency of managing taxes, duties and social contributions. These measures are likely to make an essential contribution to reducing tax evasion, to boosting consumption and encouraging economic growth.”



    Some of the most important provisions in the new Fiscal Code are the VAT reduction from 24 to 20% as of January 1st, 2016 for all goods and services, and to 9% for foodstuffs as of this June, the reduction of fuel and alcohol excises as of next year, the scrapping of special building taxes and of the 16% tax on dividends, as well as the lowering of the flat tax rate from 16 to 14% starting January 2019.


    Although the new Code was described as ultra-Liberal, the Liberals in opposition criticised it as unrealistic, and claimed some excessive taxes were preserved under a different name. Previously, the President of Romania Klaus Iohannis had also said he had doubts regarding some of the tax reductions, the management of which the Government had failed to explain. Indeed, the fiscal relaxation measures will reduce state budget revenues by over 37 billion lei in four years, but according to Government estimates half of the amount would be offset by the overall positive impact on the economy.



    In turn, the IMF said the tax cuts should be carefully analysed, so that they should not give rise to a budget deficit that would be hard to make up for. Romania’s current loan agreement with the Fund expires in September, but the Government said they would not ask for an IMF official opinion on the Code, because its provisions take effect in 2016, when Romania will probably not need a new agreement.


  • Priorities of the Romanian Government

    After being submitted to public debate for one month, the new draft Fiscal Code and Fiscal Procedure Code are high on the agenda of the Romanian Government. The new Fiscal Codes provide for substantial cuts in taxes and dues and are to be enforced as of next January, the Romanian Prime Minister pointed out. In a discussion with foreign journalists accredited to Bucharest, Prime Minister Ponta tried to dispel the fears that the new fiscal regulations might allow for the increase of certain local dues, making it clear that the new Fiscal Code would let local officials decide on their value.



    Victor Ponta went on to say that a possible cut in taxes and dues would not change the 2015 fiscal deficit target standing at 1.8% of the GDP. The Prime Minister did not rule out the possibility for fiscal relaxation to be applied even this year, underscoring that after the first quarter, the state budget had a surplus of one billion Euros. The taxes on dwellings, lands and cars will go up when the new codes take effect. In exchange, the list of products on which a 9% VAT is enforced is going to be extended and in addition to bread it will also include meat, fish, vegetables, fruit, milk, eggs, livestock and poultry.



    The new Fiscal Code provides for the VAT to go down from 24% to 20% in 2016 and to 18% in 2018. Arguing that, “sport is a social and economic phenomenon of great interest to the population, the government introduces a 9% VAT on access to sporting events. The draft Fiscal Code also stipulates that people choosing to get a divorce by administrative channels, at the city hall, will have to pay a higher fee and mayors can also increase that fee by up to 50% as compared to only 20% at the moment. Prime Minister Victor Ponta made it clear that a first analysis would be made and next week, the Government would endorse the Codes and submit them to Parliament for debate.



    The passing of the two Codes is considered instrumental to economic development and sustainable economic growth. Consequently, the Prime Minister has decided that the resignation handed in last Sunday by Finance Minister, Darius Valcov in charge of drawing up the Codes take effect only after the draft Codes have been finalized. Valcov is being prosecuted for corruption when he was mayor.


  • Priorities of the Romanian Government

    After being submitted to public debate for one month, the new draft Fiscal Code and Fiscal Procedure Code are high on the agenda of the Romanian Government. The new Fiscal Codes provide for substantial cuts in taxes and dues and are to be enforced as of next January, the Romanian Prime Minister pointed out. In a discussion with foreign journalists accredited to Bucharest, Prime Minister Ponta tried to dispel the fears that the new fiscal regulations might allow for the increase of certain local dues, making it clear that the new Fiscal Code would let local officials decide on their value.



    Victor Ponta went on to say that a possible cut in taxes and dues would not change the 2015 fiscal deficit target standing at 1.8% of the GDP. The Prime Minister did not rule out the possibility for fiscal relaxation to be applied even this year, underscoring that after the first quarter, the state budget had a surplus of one billion Euros. The taxes on dwellings, lands and cars will go up when the new codes take effect. In exchange, the list of products on which a 9% VAT is enforced is going to be extended and in addition to bread it will also include meat, fish, vegetables, fruit, milk, eggs, livestock and poultry.



    The new Fiscal Code provides for the VAT to go down from 24% to 20% in 2016 and to 18% in 2018. Arguing that, “sport is a social and economic phenomenon of great interest to the population, the government introduces a 9% VAT on access to sporting events. The draft Fiscal Code also stipulates that people choosing to get a divorce by administrative channels, at the city hall, will have to pay a higher fee and mayors can also increase that fee by up to 50% as compared to only 20% at the moment. Prime Minister Victor Ponta made it clear that a first analysis would be made and next week, the Government would endorse the Codes and submit them to Parliament for debate.



    The passing of the two Codes is considered instrumental to economic development and sustainable economic growth. Consequently, the Prime Minister has decided that the resignation handed in last Sunday by Finance Minister, Darius Valcov in charge of drawing up the Codes take effect only after the draft Codes have been finalized. Valcov is being prosecuted for corruption when he was mayor.