- Title: ROMANIA: Government announce a five percent hike in tax, citizens react
- Date: 30th June 2010
- Summary: POLITICAL ANALYST, MIRCEA MARIAN, IN HIS OFFICE
- Embargoed: 15th July 2010 13:00
- Location: Romania
- Country: Romania
- Topics: Economic News,Domestic Politics
- Reuters ID: LVA1PX7UAGSZEDB46C8E0G2CXH7R
- Story Text: Romanians are preparing themselves for a five percent rise in VAT, after the government said it will hike value added tax to 24%, in order to cut the budget deficit and secure a 20 billion euro (27 billion USD) IMF-led deal.
Prime Minister Emil Boc's government announced the rise on Saturday (June 26) in a last-resort effort to raise money after the country's top court said planned pension cuts were illegal.
But political analyst Mircea Marian said the government was unlikely to get the full benefit of the tax rise.
"I think that the government raised the VAT so much, keeping in mind that this measure will encourage tax evasion. A part of business will be moved to a grey economy and people will move to the markets with less fiscal control. It is very difficult to calculate how much money the government will get, but it certainly won't be five percent more," he said on Monday (June 28).
Small business says it will suffer as a result of the tax rise.
Florist Viorica says that a combination of the rise and previously announced cuts in wages could spell the end of her business.
"If they cut from the people working in state administration 25% and rise the vat to 24%, it means that they will finish us off. People will buy bread to have something to eat, and we will be finished," she said.
Mari who sells spectacles says she is not sure what can be done to ensure the survival of the business.
"Already for a few months we have had fewer and fewer clients, it's possible now to not have them at all. We will pay more for the stock we are selling, so if we are not able to sell it, we will have no profit. An idea is to sell very bad quality stock at low prices. The problem is that I don't know if our clients will like this," she said.
Marian says the situation could result in a battle between buyers and sellers.
"Everything depends on how long buyers will postpone their expenses and this way force sellers not to raise the prices."
On the streets of Bucharest, people were concerned.
"The VAT rise means the prices will rise. It will be very difficult for us. I work in state administration, meaning that my salary will also be cut. We are very sad, it will not be easy for us," said Mirela.
"I think I will not be alive next year, thanks to these measures," Nicu added.
Ioana said she would have to make changes to her lifestyle.
"I will give up everything. I will eat less, I will dress in what I have, if necessary I will sew my own clothes. I will buy almost nothing. What can we do? That's the situation," she said.
Marian said it was likely there would be a rise in blackmarket activity.
"Probably a lot of people will orientate to the vegetables markets. It is a 'no receipt' area where prices are much lower," he said.
Romania's leu currency hit an all-time low against the euro on Monday, as the government struggled to quell concerns over its public finances. Romania's representative to the IMF, Mihai Tanasescu, said there was a possibility that the board may delay talks on Romania until early July.
- Copyright Holder: REUTERS
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