Romtelecom: VAT Increase To Also Reduce Consumption On Telecom Market

According to Ioannidis, an increase in the value added tax triggers a reduction in consumption on any market, in any country, as almost all customers will think twice before making any purchase. Ioannidis declined to comment on the Government's recent plan to hike VAT by 5 percentage points to 24%, but pointed out that Romania needs financing from the International Monetary Fund.

Ioannidis also said Monday that a few hundred employees with Romtelecom, majority owned by Greece's OTE, will file requests for voluntary layoffs, adding the voluntary layoff program ends Wednesday, June 30. He said Romtelecom has less than 9,000 employees and no target has been set yet as to how many people will continue to work for the company until the end of the year.

He stressed that the employees leaving the company through voluntary layoffs will receive severance payments of up to EUR14,000, depending on seniority.

In January 2010, Romtelecom transferred 400 workers to Ericsson Romania, following a five-year partnership agreement between the two companies.

In February, Romtelecom said it would sack 600 employees within its Operations division, as of May 1, in a move to cut costs and improve efficiency, on the backdrop of fierce competition on the telecom market.

Romtelecom reported revenues of EUR194.8 million in the first quarter of 2010, down 3.3% on the year, and its EBITDA (earnings before interest, taxes, depreciation and amortization) reached EUR59.3 million, down 20.2% on the year, to, according to a report of Greek Group OTE.

Romtelecom operates approximately 3 million phone lines in Romania and employed a little over 10,000 people at the end of 2009.

The Romanian Government this weekend decided to increase the value added tax to 24% as of July 1, from the current 19%, in a bid to keep the country's budget deficit below the IMF-agreed cap of 6.8% of GDP.

Recession-hit Romania, which is relying on a EUR20 billion international rescue loan led by the International Monetary Fund, has pledged to drastically cut public spending and the Government has adopted laws cutting public sector wages by 25% and pensions by 15%. However, the Constitutional Court ruled pension cuts illegal and the Government is now raising taxes to make up for that part of its spending cut plan.

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