One of the main measures in the Tax Code, which is currently awaiting Parliament approval, is the reduction of the value added tax rate from the current 24% as of January 1, 2016. The government proposed a reduction to 20% but MPs are backing a larger cut, to 19%, and the proposition is expected to pass as it has attracted the opposition’s support as well.
“It is our assessment that the tax package as approved by the government would create a significant fiscal gap compared to the government’s fiscal targets,“ said Guillermo Tolosa, IMF Resident Representative in Romania.
“Finding offsetting measures to bridge this gap would be very important, but also very challenging,” Tolosa also said in a statement Tuesday.
In its turn, the European Commission expressed its reserves regarding the proposed tax cut.
The VAT rate cut proposal raises several question marks as it can hurt Romania’s fiscal sustainability, said Annika Breidthardt, Spokesperson for Jobs, Growth and Investment, at the European Commission.
A technical mission from the Commission is currently in Romania to discuss with local authorities the Tax Code draft and the economic reforms.
Romania’s Parliament will start debates on the new Tax Code and the Fiscal Procedure Code on Wednesday.