Romania’s Government approved via emergency ordinance the VAT rate cut on agricultural inputs and services to stimulate the agriculture sector. The measure, which has a low impact on the state budget revenues, may also lead to lower prices for fruits and vegetables, according to local producers.

The Government cut the VAT rate on agricultural inputs and services from 20% to 9% starting August this year. This is the third VAT rate cut operated in the past 18 months. The VAT rate on food and soft drinks was cut from 24% to 9% in June 2015 and the general VAT rate was reduced from 24% to 20% on January 1, 2016. The measures have led to a drop in consumer prices and higher retail sales in Romania, but have also reduced the state’s revenues from VAT.

The VAT rate will go down from 20% to 9% for agricultural inputs such as seeds, fertilizers, and crop maintenance products such as pesticides, herbicides, and insecticides. The lower VAT will also apply on agricultural work.

“Through this measure we aim to stimulate quality agricultural work and the productivity increase in agriculture, and to bring to light some agricultural services, which are currently provided on the black market,” Prime Minister Dacian Ciolos, a former European Commissioner for Agriculture, said on Tuesday.

He also asked the Finance Ministry and Agriculture Ministry to see to it that the VAT cut will be reflected in the prices of these commodities and services.

Finance minister Anca Dragu explained that this measure would have a low impact on the state budget, and that the direct revenue decline would be compensated by the positive effects on agricultural producers and the economy as a whole. The measure will lead to a EUR 15 million drop in budget revenues this year, and EUR 43 million in 2017, according to the finance minister.

The measure may also lead to lower prices for agricultural products, such as fruits and vegetables. “If everyone respected the law, this should lead to a 10-12% price drop for all products that take their raw materials from the plant sectors, such as vegetables and canned vegetables, bread and bakery products,” said Laurentiu baciu, president of the Romanian Agricultural Producers Associations’ League (LAPAR), quoted by local News.ro.

editor@romania-insider.com