World Economy

EC Rejects Romania’s New Fiscal Code

EC Rejects Romania’s New Fiscal CodeEC Rejects Romania’s New Fiscal Code

Representatives of the European Commission and of the Romanian government have failed to reach an agreement over the changes brought to the fiscal code, according to Mediafax.

In this context, representatives of the International Monetary Fund (IMF) will no longer be coming to Bucharest this July, Romania’s Business Review reported.

Some of the main changes brought by the fiscal code which was passed by parliament earlier this week include: cutting the general VAT level from 24% to 19% starting January 1, 2016, the elimination of the special constructions tax and the excise tax on fuels, a cut of the dividends tax and increasing the deductibility limit for private healthcare.

It also enables local town halls to increase taxes by up to 50% while the tax on unused land can be increased by up to 500%. The initial draft also included the reduction of the flat tax and of social security contributions starting 2018 and 2019, but these measures were later dropped.

The minister of finance, Eugen Teodorovici, said Romania has taken upon itself a “temporary deviation from next year deficit target” which will be the direct effect of cutting the VAT from 24% to 19%. Its impact is estimated at RON 9 billion ($2.2 billion) while all the changes to the fiscal code will cause the state budget to lose RON 12 billion in revenues.

Romanian authorities have recently announced to the EC that its deficit target for the period 2016-2018 will be of up to 1.2% of GDP. However, the level for next year is estimated at around 2.8-2.9% close to the 3% Maastricht limit. Teodorovici said Romania will make efforts to lower its deficit to around 2.5%.

The IMF has previously stated that passing the fiscal code will create a significant fiscal deficit and that it’s very important and also very difficult to find compensatory solutions.