Deloitte bets on VAT increase to 22% in 2010

The International Monetary Fund and Romanian government could go further afield in its efforts of increasing state revenues by raising the value added tax, although the best way to support the economy and keep it at the current level is to find other solutions to mend public finances, said George Mucibabici, Chairman Deloitte Romania.

“I expect the authorities to raise the VAT because it is a fast solution, at hand, and because on the other hand, nobody touches the single tax. We have to take into account what happens around us. Many European countries advocate single tax device that we have been pioneers in,” George Mucibabici (photo), Chairman Deloitte Romania said in a press conference.

The head of the auditor in Romania added Romanian government should find solutions to improve tax collection by following the American pattern, where the agency responsible for tax law enforcement analyzes taxpayers’ incomes by comparing them with their possessions and with their statements.

Pieter Wessel, partner at Deloitte stressed that the raise of VAT was a solution at hand of the government, as for this type of tax the certainty of a fast collection is higher.

“I bet few months ago on an increase of the value added tax to 22%. Of course, it would be ideal if it stayed at its current level, but from budget and global competitiveness perspective, the raise of the VAT would be the least bad of all the options, as it doesn’t bring about an increase in manufacturing costs. However, if other taxes had been raised, than labor costs would have increased accordingly, and this would inevitably reflect in the manufacturing costs”, said Wessel.

The single tax (16%) and standard VAT (19%) are two of the Romanian tax system’s main advantages in the region, Deloitte said, but the frequency at which Government operates legislative changes, the deficiency of the regulatory framework and inefficiency of the administrative apparatus serve as instability drivers in the robust development of the Romanian business environment.

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