PM: cutting the VAT for bread requires provisions worth EUR 56 mln

Should the Romanian government implement the VAT cut for bread from the current 24 percent to 9 percent in the second half of this year as it was previously announced, this would require provisions worth RON 120 million (approx. EUR 27 million) for the second semester alone while total provisions would amount to RON 220 – RON 250 million (approx EUR 50 – 56 million), prime minister Victor Ponta said this Monday according to Mediafax.

The PM said the measure hasn’t been agreed upon yet with the International Monetary Fund (IMF) but the government hasn’t given up on it. While IMF representatives said differentiated VAT quotas will reduce tax revenues, the Romanian government is confident the measure will help fight tax evasion – which for bread is estimated to reach a whopping 70 percent – and actually generate more cash to the state budget. Cutting the VAT for foods should start with bread this year and if the measure proves successful, other goods will be introduced in the scheme starting 2014, said the PM.

“The idea is we don’t have the IMF’s approval. We have only a proposition we have discussed with IMF representatives. Things look like this: our idea to cut the VAT to 9 percent for a series of foods is an economic and political objective we have not given up on. IMF said we will have a considerable reduction of VAT revenues,” said Ponta adding that the measure will be further discussed during the next meeting with IMF representatives.

“If on December 31, 2013 when we draw the line we will see that the IMF was right and we have less money, it means our project was wrong. If it will be revealed that we were right and a 9 percent VAT will lead to higher tax revenues because we will actually tax what wasn’t taxed before, this will be a valid argument to extend this system to other products such as meat and milk,” went on the PM.

A reduced VAT should help reduce tax evasion but if producers are not willing to pay even the reduced VAT this would be “a great disappointment for me, for Daniel Constantin (e.n. the agriculture minister) and for all those who believe in this project,” concluded Ponta.