Romania’s Government will cut the value-added tax (VAT) for all food items from 24% to 9%, starting June 1, 2015, Prime Minister Victor Ponta announced on Tuesday, April 7.

Ponta said that the reduced VAT will apply to all food products, as well as on non-alcoholic beverages and catering services. The current VAT rate on food is 24%, except for bread which has a reduced VAT rate of 9%.

“We have decided to cut the VAT for all food items to make this measure easier to apply. We also support the general VAT cut from 24% to 20% starting January 1, 2016, as well as the other measures in the new Fiscal Code,” Ponta said.

He explained that the Government took this decision because of the high impact, as the Romanians spend almost a third of their revenues on food, compared to an EU average of about 18%.

“This VAT cut should almost entirely be reflected in lower prices, not higher profits for some retailers,” Ponta added. The VAT cut should thus theoretically lead to a 12% drop in food prices.

“With this measure, the average VAT rate in Romania will go down to about 17.5%, according to the Finance Ministry’s calculations, which is lower than in Bulgaria, Hungary and Czech Republic,” Ponta announced.

The Prime Minister also said that the Government can afford this measure as fiscal revenues have been higher than programmed in the first quarter of 2015.

The measure will impact the state budget by about RON 5 billion (EUR 1.12 billion). The state had a fiscal surplus of RON 5.4 billion (EUR 1.21 billion) in the first quarter, according to data presented by Ponta.

The state’s revenues in the first quarter amounted to RON 53.4 billion (EUR 12 billion), which is RON 3.3 billion more than programmed and RON 5.4 billion more than in the same period of 2014. At the same time, the state’s expenditures were RON 48 billion (EUR 10.8 billion), which is RON 7.4 billion under lower than the planned level and even lower than in Q1 2014.

Romanian Government detonates “fiscal nuke”: major tax cuts in plan

Andrei Chirileasa, andrei@romania-insider.com