Reverse taxation entails that transaction taxes, such as VAT, are paid by beneficiaries instead of entities that deliver the merchandise. The Finance Ministry estimated reverse taxation was to bring in an extra RON240 million to the state budget in 2011 and RON410 million in 2012.
Romania in October last year asked for an extension of the system until 2015, after a similar extension obtained in 2011, which expires at the end of May this year.
A document drafted by the Finance Ministry in March shows the Commission has not approved a new extension and said the previous extension had been granted in specific circumstances and Romania had undertaken to implement tax reforms and return to its previous VAT collection system.
However, the Government is still hoping to extend reverse taxation on cereal under a EU directive, currently analyzed by the Commission, which targets to fight VAT fraud by introducing a rapid response mechanism and allowing the Commission to grant temporary derogations and to allow the extension of the reverse taxation system to several sectors, including farming products.
Finance Ministry secretary of state Dan Manolescu said Wednesday the Government will decide whether to apply a lower sales tax, of just 9% instead of 24%, on bread alone or the entire wheat-bread chain depending on the European Commission’s plans regarding reverse taxation on cereal.
“As regards lowering VAT on bread to 9%, the effects of such a measure depend highly on the reverse taxation system on cereal, which may or may not be extended beyond June 1,”
According to official data, Romania loses out on billions of lei annually from cereal trading due to VAT fraud.