The new Tax Code introduces significant tax cuts that were cast off by the European Commission and the International Monetary Fund.
Finance minister Eugen Teodorovici said Wednesday that one of the main measures in the Tax Code is the reduction of the value added tax rate from the current 24% to 19% as of January 1, 2016.
The international creditors are especially frowning at the cut of the value added tax rate, as the VAT is the most important tax for Romania’s budget, bringing about a quarter of the total revenue.
Teodorovici said that Romania’s budget deficit will be higher than the target agreed with the international financial institutions next year, but still below the cap of 3% of the gross domestic product allowed by the European Union rules.
Beside the VAT rate reduction, the new Tax Code eliminates the special constructions tax, introduced just two years ago, and cuts the dividend tax to 5%. The law also sets forth the plan for reduced social insurance tax rates and a flat rate tax cut starting with 2018.