Romania Govt Ups VAT by 5% in Emergency Meeting

A woman shows her injured hand as protesters face riot police during a protest against Cabinet austerity measures outside the parliament building, Bucharest, Romania, 15 June 2010 Photo by EPA/BGNES

Romania's Cabinet decided at an emergency meeting Saturday to increase the value-add tax in the country from 19% up to 24%.

The Romanian government also agreed not to increase the flat corporate and income tax currently set at 16%, Prime Minister Emil Boc announced after the sitting, as cited by BTA.

The Cabinet met Saturday in order to decide on new ways to reduce budget spending after on Friday the country's Constitutional Court rejected the plan envisaging a 15% reduction of retirement pensions and changes of the special pensions of magistrates.

“I cannot hide my deep disappointment with the fact that we are increasing the VAT. We are taking this measure in order to improve our financial capacity. I don't deem this a good measure for Romania,” stated Romanian Finance Minister Sebastian Vladesku.

The new financial measures are expected to help reduce Romania's 2010 budget deficit down to 6.8% from the GDP, which is a condition for receiving the rest of a bailout loan from the International Monetary Fund.

Late Friday night, the IMF announced that it was putting off the meeting with the Romanian government originally scheduled for June 28 in order to unblock the fifth payment EUR 900 M from an EUR 20 B bailout loan, as a result of the Constitutional Court ruling against the planned austerity measures. Romanian PM Boc has said that the meeting will taken place on June 30.

In the spring of 2010 the Bulgarian government also considered increasing the 20% VAT by 2% to 5% but eventually decided to go for a higher budget deficit. Calls for abandoning the 10% flat corporate and income tax rate in Bulgaria were also rejected.

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