On Saturday, the government has decided to raise VAT by 5%, from 19% to 24%, after the Constitutional Court decided that the government decision to cut pensions by 15% was unconstitutional. The flat tax rate has remained unchanged at 16%.
The raise of the VAT will come into effect on July 1st, through an emergency ordinance which amends the current Tax Code.
The minister of Finance, Sebastian Vlădescu, said that the hike of the VAT will increase budget revenues by 3.4 and 4 billion Euros by the end of the year: "For now this amount is needed and will allow us to keep the budget deficit at 6.8%".
Sebastian Vlădescu added that after the increase of the VAT, both the GDP and inflation forecast will need to be revised stating that for now, the government has no plans to raise other taxes.
The advisor to the NBR governor, Adrian Vasilescu, warned that inflation could raise to a two figure level again, after many years of efforts to stabilize it, forecasting an inflation rate of 10%-12% this year, as a result of the VAT increase.
* What businessmen say
Professional associations claim that raising VAT will not increase budget revenue, quite the opposite, leading to an increase in tax evasion, layoffs and price hikes.
Food prices would increase 5%, as would fuel prices.
AS consumption is expected to decrease, some businessmen claim that prices will not increase, but the quality of goods sold will drop.
Sorin Minea, the chairman of the Federation of Professional Associations of the Food Industry -Romalimenta, said: "The food industry can hardly be called profitable since the beginning of the crisis. Massive reorganizations occurred, and this process will continue, due to the 5% hike of the VAT. People will be laid off because the food industry will produce less, due to lower consumption. Lowering output on a productio
