Romania MPs Agree to Cut VAT to 20% Next Year, 19% in 2017

Members of Romania’s parliament across parties agreed on Thursday to cut Value Added Tax (VAT) to 20% from next year, and to 19% from 2017.

VAT in Romania currently stands at 24%.

Aside from the tax cuts, the government led by Prime Minister Victor Ponta also plans to increase considerably the wages in the public sector from 2016.

Ponta announced wage hikes for healthcare workers earlier this week, opening the door to similar demands from other state workers.

The government has initially proposed lowering VAT to 19% from 2016 as well as cutting excise tax on fuels also from next year to boost growth.

The scope of the proposed tax cuts, however, raised concerns of excessive increase in budget deficit from the European Commission, the International Monetary Fund as well as Romania’s central bank and the country’s Fiscal Council watchdog, Reuters said in its coverage of the news.  To address those concerns, the MP’s have agreed to cut VAT in steps and delay lowering excise tax on fuels until 2017.

The tax cuts agreed to by MPs on Thursday will lead to a budget deficit equivalent to 2% of 2016 gross domestic product. The figure is higher than the target of 1.2% of GDP, which Romania agreed under an EU fiscal pact, but lower than the Maastricht ceiling of 3%.

Parliament is expected to vote on the tax cuts next week.

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