Romania raising VAT to 24 per cent

Romania plans to raise value-added
tax to 24% in an effort to curb the country’s deficit, the prime minister has
said.

Emil Boc said the 5% rise was an
attempt to guarantee a $20bn International Monetary Fund loan.

The move comes after Romania’s top
court ruled out plans to cut pensions, prompting the IMF to delay key talks.

But critics say the VAT rise will
hit consumer spending in the European Union country.

“The government has decided to
raise the VAT tax by five points,” Mr Boc said at a press conference.

“Under these conditions, the
agreement with the IMF will continue”.

He said an IMF meeting to discuss
Romania’s aid package would now be held on 30 June.

The austerity plan negotiated by
the government with the IMF aims to cut the national deficit from 7.2% of
output to 6.8%.

‘Deeply
disappointed’

Finance Minister Sebastian Vladescu
said the increase, which will be implemented in July, will bring in between 3.5
to 4 billion lei ($1-1.15bn) extra revenue in 2010.

“I cannot hide that I am
deeply disappointed that today we are raising VAT,” he said, adding that
it was important to ensure the country’s “financing ability”.

The prime minister said the VAT
rise would be “closely co-ordinated with the National Bank of Romania in
order to avoid inflationary effects”.

The increase will put Romania just
below a number of states which share the highest VAT rate in the EU – 25%.

The average rate for European
countries is 20%, according to accounting firm KPMG.

But some critics argue that the VAT
increase could worsen an already struggling economy.

“An increase of VAT will be
bad for consumption,” said Nicolae Chidesciuc, chief economist at ING Bank
Romania told AFP.

He said there was a need to
“adjust spending in the public sector”.

On Friday, a court ruled out
government plans to cut pensions by 15%.

The Constitutional Court said the
measure was unconstitutional, a ruling which cannot be appealed.

The government is also planning to
cut public sector salaries by 25%.

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