If the trend continues, and the second half ends with an 8% decline, the budget will be 6 billion lei (EUR1.3 billion) short of the scheduled RON54 billion. The Finance Ministry set out to collect RON54 billion in VAT but if the trend in July continues, it will actually get only RON48 billion. VAT collection reached RON52 billion in 2016, hence the nervousness of the ruling party which is trying to offset the decline by reinventing all sorts of taxes.
If consumer spending rises 8% in the first half, VAT collection should follow the same trend, but that is not happening.
“I can’t believe the figures don’t match. I don’t think tax evasion worsened, but rather it could be about a decline in turnover. (…),” says economist Dragos Cabat.
The National Statistics Institute will publish seven-month consumer spending data in two weeks. Retail sales were down 8% in the first half and wholesale sales down 6%. There is no sign to indicate something dramatic in July that should lead to significant decline in consumer spending and VAT revenue. Why the decline in VAT revenue then?
The VAT cut by 1% as of January 1, technically cut into the government’s revenue by 5%. The 8% rise in consumer spending should have translated into revenue, which should have gone up 3%. However, the VAT collection dropped 4.6% in January-July, the July 2017 to July 2016 decline is 8%.
Last year’s VAT revenue of the general consolidated budget stood at RON51.6 billion and was expected to reach RON54 billion in 2017. The current trend shows it will not be higher than RON48 billion, according to ZF estimates. The RON6 billion not collected will probably be offset by spending cuts (probably investments) or via the budget deficit, set at 2.96% of GDP in the budget law.
Finance Ministry officials were not available for comment. Six weeks ago, the head of the tax authority Bogdan Stan was fired precisely because of the poor collection.
(English version by Loredana Fratila-Cristescu)