Romania to Cut VAT on Foods to 9% from June

Romania will cut value added tax (VAT) for all food products to 9% from 24% starting in June, six months earlier than planned, as budget revenue is higher than expected, Prime Minister Victor Ponta has announced.

He also said the cut in VAT rate to 9% will also apply to non-alcoholic beverages and catering services.

“We also support the VAT general reduction to 20% from January 1, 2016, along with the other measures included in the tax codes,” Ponta said on Tuesday, according to Mediafax.

Ponta explained that applying the cut to all food products and the entire distribution chain makes it easier to manage.

The measure is sustainable, because instead of having a deficit of RON 5 B (EUR 1.13 B) at the end of March 2015 as agreed with international lenders, Romania posted a record high budget surplus of RON 5 B, Ponta said at a cabinet meeting aired live on the public Romanian television.

After cutting budget deficit to 1.8% of GDP last year from 7.2% in 2009 by a series of measures including cuts in state salaries, limits in public employment and tax hikes, Romania is now seeking to reverse one of the EU’s harshest austerity drives to increase consumption and bring purchasing power closer to levels seen in richer western EU states , Bloomberg said in its coverage of the news.

Romalimenta, the federation of food industry employers in Romania, has supported the sharp lowering of VAT on foods as it believes the impact on consumption would be greater than that of a cut in headline VAT from 24% to 20%, according to Romanian news agency Agerpres.

Ponta’s announcement comes on the same day when Vladislav Goranov, the finance minister of neighbouring Bulgaria, dismissed proposals by businesses to introduce differentiated VAT rates for foods, saying  such rates were hard to administer and risked distorting consumption trends. Bulgaria has a flat VAT rate of 20%.

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