Romania

Romania’s potential new reduced VAT rate & the success of the food VAT rate drops

Romania potential new reduced VAT rate & the success of the food VAT rate drops

Romania’s Lower House of Parliament has approved plans to introduce a new reduced rate of VAT to 5% for cultural services, lower value houses and printed media. The new 5% VAT rate would apply to books, newspapers, magazines, and tickets to museums, monuments, cultural events, cinemas and sporting events.

More approvals from the Upper House of Parliament still need to be received before this reduced VAT rate can be introduced.

Romania’s recent success

Romania has recently seen success in lowering the tax rate on food products by 15% (see previous eBiz Answers post). From this they have seen an increase of 17% in the number of products sold in the first 2 weeks, compared to figures from last year, with coffee seeing the biggest increase in sales, going up 25%. Overall sales were 12% higher than in May and 17% higher than June 2014.

Romania confirms 5% VAT rate cut

Romania confirms 5% VAT rate cut

The Romanian Government has now confirmed that the planned VAT rate cut is going ahead, a drop from 24% which is one of Europe’s highest to 19% which is one of the lowest. It has recently been uncertain as to whether the cuts would go ahead due to some political unrest when the opposition accused the Government of going in the wrong direction with the budget and calling for a re-election which would have put the VAT plans in jeopardy.

However earlier this month the Government confirmed the VAT cut was to be implemented by 1st January 2016, and at a greater rate than was expected. In February they announced a cut to 20%, this is based on a quicker than expected return to growth in the country.

Furthermore in addition to this they also confirmed that draft beer will drop from 24% to 9% following in line with the earlier cut to food products.

Yet with this measure potentially impacting the budget revenues by some EUR 2.6 billion both the EU and the IMF have expressed doubts over the sustainability of such deep tax cuts in Romania.

Romania to cut VAT on food products to 9%

Food chain welcomes early cut on VAT

Romania will cut value added tax (VAT) for all food products to 9% from 24% starting on the 1st of June 2015, six months earlier than planned as budget revenue is higher than expected, after cutting budget deficit to 1.8% of GDP last year from 7.2% in 2009 by a series of measures including cuts in state salaries, limits in public employment and tax hikes, the Romanian Government has announced.

The law extends the scope of the reduced VAT rate to food, including beverages but excluding alcoholic beverages, animals, and live poultry from domestic species, seeds, plants, and ingredients normally used in food preparation, and also restaurant and catering services, excluding sales of alcoholic beverages. Applying the cut to the whole food chain makes it easier to manage. Continue Reading