Fin Min Admits Romania May Increase VAT Rate In ‘10

Pogea said the 2010 draft budget does not include modified VAT levels yet, but this could change if the budget gap cannot be kept within the agreed limits.

„We will see whether the deficit level (…) can be sustained by the current revenue and taxation levels. We think we will be able to implement the other measures to adjust spending and to maintain the deficit at 5.9% [of the GDP], as pledged,” Pogea said.

Pogea mentioned the government plans to reform the public revenue system in 2010 to increase payments to the budget, adding the flat tax should be kept at its current level of 16%.

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Romania currently has one of the lowest revenue to GDP ratios, of 31.8%, while other countries in the region approach 40%, the minister also said.

Romania, which secured a EUR20 billion IMF-led financial package back in the spring, committed to a series of fiscal and economic measures meant to reduce spending and lower the budget deficit to below 6% of the GDP in 2010.

For 2011, the authorities in Bucharest pledged to bring the budget deficit down to below 3% of the GDP. The IMF allowed Romania run a budget deficit of 7.3% of the GDP this year, nearly double from the initial 4.6% cap agreed in the spring, on a worse-than-expected economic decline.

Until now, government officials have repeatedly assured increasing VAT or the flat tax were not part of the proposed measures.

Romanian President Traian Basescu on Monday told foreign investors at a meeting that the government might increase VAT rate as of next year, adding that he would rather have a higher VAT than a higher flat tax, according to Ziarul Financiar business daily.

The paper, citing participants in the meeting, reported the VAT could be increased by 3 percentage points up to 22% in 2010, depending on economic conditions.