The Romanian Finance Ministry said in a document drawn up last week that the country has not yet identified the revenue resources needed to offset the measure’s negative impact on the state budget. Without the revenues Romania cannot stay within the budget deficit target agreed on with international financial institutions, the document reads.
The ministry’s analysis shows that cutting VAT on bread from 24% to 9% would entail losses of 635 million lei (EUR143.8 million) (0.1% of the gross domestic product) in 2013, RON671.7 million in 2014, RON707 million in 2015 and RON742.1 million in 2016.
Prime Minister Victor Ponta said recently that reducing the value added tax on bread requires provisions of RON120 million for the second half of the year.
In January Ponta announced Romania might apply starting July 1 a pilot-project to cut VAT on bread from 24% to 9% if budget revenues increased so as to be able to cover a RON200 million deficit the measure would trigger.
He said back then the project was meant to show if the VAT cut would reduce tax evasion in the bread industry and increase sales. The measure has yet to be discussed with the International Monetary Fund.
Finance Minister Daniel Chitoiu said later Sunday, the pilot-project lowering VAT on bread stands up and will be implemented in July.
“The document [on the measure’s impact on the budget] is not official. We have resources to cover the deficit triggered by the VAT cut and all fiscal measures have been taken to reduce tax evasion. We hope the project will improve collections to the state budget to be able to cover the gap created by a lower VAT,” the minister added. (EUR1=RON4.415)