Basescu: I would rather have a VAT raise than a flat tax raise

“I would rather have a VAT raise than a flat tax raise,” Romanian president Traian Basescu told foreign businesspeople at the Romanian economic forum during a questions and answers session held behind closed doors. “Whatever the pressure from the Monetary Fund, the flat rate is not to be touched,” said the president, according to a participant to the talks. Basescu said the Bucharest authorities “would rather abandon the 19% VAT than boost the 16% flat tax.” According to ZF sources attending the meeting, the head of state said the increase would amount to a few percentage points. The VAT brings the most money to the state budget, with VAT collection amounting to around 41 billion RON (11 billion euros) last year. If the rate were to rise from 19% to 22%, sums collected could theoretically rise to almost 13 billion euros. The IMF insisted since the inception of the agreement on measures to boost budget revenues, but experts of the Fund ultimately agreed that raising a major tax in full recession would be counterproductive. However, Hungary’s example proves that it may happen – the country had to raise the VAT to 25%. Official sources said the Romanian tax system could be reshuffled, and a prospective decision to raise the VAT, by no more than three per cent, which would bring the tax to 22% at the beginning of next year, will depend on the appearance of the first signs of an economic rebound. The flat tax, the main item on the economic agenda of the Justice and Truth Alliance, which propelled Basescu to presidency in 2004, has been considered the most successful fiscal measure introduced in Romania over the last few years.