VAT increase as of July 1, impossible according to unions and employers

The measure was already printed in the Official Gazette.

The value-added tax (VAT) increased from 19 per cent to 24 per cent may not be enforced as of July 1 because it would be against the Constitution. Employers and unions alike claim taxes may only be amended by organic law and by modifying the Fiscal Code. According to them the measure may only enter into force on January 1, 2011, ‘Puterea’ daily informs. But according to Agerpres, the ordinance providing the VAT increase was published in the Official Journal yesterday.

The President of the Federation of Trade Unions in the Food Industry, Dragos Frumosu, says the 5 per cent VAT hike ‘would results in 10 to 15 per cent of the shelf price.’ ‘The VAT may only be amended through the Fiscal Code. If the Fiscal Code is changed now, any change will be applicable as of January 1, this is the law. I do not know how they expect to be able to enforce the measure legally on July 1. All these tricks will be challenged before the Constitutional Court,’ Frumosu said. In his opinion, the VAT increase ‘will be burying Romanian food industry and agriculture’. ‘It will foster tax evasion. Small and medium enterprises will collapse in three to four months maximum. (…) The flat-tax will also go up in two or three weeks,’ Frumosu also said.

The president of the General Union of Industrialists of Romania (UGIR-1903), Cezar Coraci, in turn stated the impact of the VAT hike on consumption would be a dramatic one: ‘We have the 25 per cent pay slash in the public sector and, more recently, the five per cent VAT rise. The thing is these two measures tend to cancel one another as they are increasing the VAT payable by a public whose purchasing power will already have fallen. In my opinion, three months from now we will be back to square one if not worse.’ Eurostat too underlined that until now, Romania had one of the lowest VAT rates in Europe, but the 24 per cent level will make it one of the highest.

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