Romania’s VAT cash accounting system could become optional

Update: Finance minister Daniel Chitoiu said on Wednesday the VAT cash accounting system will become optional from January 2014, because studies showed it hampered business making.

Luisiana Dobrinescu, partner at law firm Dobrinescu Dobrev, says the “psychological” conditions are in place to make the VAT cash accounting system, which has had a negative impact on small companies, optional.

The government enforced this system for companies with a yearly turnover below EUR 500,000 starting this year, in a bid to hike revenues to the budget.

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Dobrinescu said this VAT regime could have helped small companies sail through choppy waters. However, she adds, Romania’s implementation of the system penalizes the larger business partners of the small firms, by delaying the deductibility of VAT.

“Contrary to the expectations of the regulator, this hasn’t boosted payments towards small companies, but resulted in their discrimination and even elimination from the competition for large clients,” Dobrinescu told BR.

Although budget revenues from VAT rose by 4.9 percent in the first semester against the same period of last year, Dobrinescu says the hike can’t be “necessarily” pinned on the VAT cash accounting system, but on higher compliance.

Experts and companies are anxiously waiting for an assessment report on the Ministry of Finance, regarding the VAT cash accounting system. Based on the findings from the analysis, the ministry can extend this measure for all companies or make it optional, commented Dobrinescu.

“Since publishing in the Official Gazette, the VAT cash accounting system was vehemently criticized,” says Dobrinescu.

“Unfortunately, the political hubris was too big to recognize prior to its enforcement, the major flaws of this system.”

She says a bill amending the VAT cash accounting system has already been finalized by business associations, which includes measures addressing the six month transitional period to the optional regime.

Ovidiu Posirca