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VAT Hike To Be Directly Felt By Population – Romanian Central Bank

Increasing VAT in Romania will affect the rate of inflation, which could reach 10% in the next few months, as suppliers and distributors will transfer most of the tax directly to the end-price, said Lucian Croitoru, advisor to the governor of the National Bank of Romania.
VAT Hike To Be Directly Felt By Population – Romanian Central Bank
26 iun. 2010, 16:51, English

„In Romania, suppliers and distributors immediately transfer the VAT to consumers and do not accept reducing their profit margins. The VAT will hit the individual’s pockets,” Croitoru told MEDIAFAX on Saturday.

Croitoru said the central bank would be forced to intervene, should the rising prices affect inflation forecasts.

He repeated his Friday statement, whereby tax hikes will not be enough to reduce the budget deficit and public sector layoffs and wage cuts will still be required. In Croitoru’s opinion, the initial austerity plan had more „social compassion,” and the issue of pensions is still up in the air, with delays only meaning harsher measures would be needed.

„It will not be long before we talk about pensions again, because there is still the problem of the pension system’s unsustainability,” said Croitoru.

After the Constitutional Court rejected part of its austerity plan, Romania’s Government has decided to increase VAT from 19% to 24%, leaving the flat tax as it is, and will also ask the Parliament to hurry the application of the bills reducing public sector salaries and recalculating special pensions, people close to the matter told MEDIAFAX on Saturday.

Finance Minister Sebastian Vladescu said Saturday the VAT hike has already been agreed upon with the International Monetary Fund and is expected to provide 3.5-4 billion lei (EUR1=RON4.2808) to the state budget, allowing the country to meet the 6.8% of GDP budget deficit target.