European Commission rejects Romania’s new Fiscal Code

Newsroom 26/06/2015 | 13:29

Representatives of the European Commission and of the Romanian government have failed to reach an agreement over the changes brought to the Fiscal Code, according to Mediafax. In this context, representatives of the International Monetary Fund (IMF) will no longer be coming to Bucharest this July.

Some of the main changes brought by the Fiscal Code which was passed by Parliament earlier this week include: cutting the general VAT level from 24 percent to 19 percent starting January 1, 2016, the elimination of the special constructions tax and the excise tax on fuels, a cut of the dividends tax and increasing the deductibility limit for private healthcare. It also enables local town halls to increase taxes by up to 50 percent while the tax of on unused land can be increased by up to 500 percent. The initial draft also included the reduction of the flat tax and of social security contributions starting 2018 and 2019, but these measures were later dropped.

The minister of finance, Eugen Teodorovici, said Romania has taken upon itself a “temporary deviation from next year deficit target” which will be the direct effect of cutting the VAT from 24 percent to 19 percent. Its impact is estimated at RON 9 billion while all the changes to the Fiscal Code will cause the state budget to lose RON 12 billion in revenues.

Romanian authorities have recently announced the EC that its deficit target for the period 2016-2018 will be of up to 1.2 percent of GDP. However, the level for next year is estimated at around 2.8 – 2.9 percent close to the 3 percent Maastricht limit. Teodorovici said Romania will make efforts to lower its deficit to around 2.5 percent.

IMF has previously stated that passing the Fiscal Code will create a significant fiscal deficit and that it’s very important and also very difficult to find compensatory solutions.

Simona Bazavan

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