Big cuts in price increases

Romanian Government yesterday decided that tariffs for power, natural gas, fuel, water and sewerage services should not be raised by more than 19 percent starting April 1, thus accounting for the introduction of the value added tax for these services, the Executive spokesperson Gabriela Vranceanu-Firea announced yesterday. Discussions on the increase of these tariffs have been postponed for May, Firea also said. The Competition Commission had suggested the Government an increase of electricity tariffs between 14.5 percent and 16.4 percent and for heat tariffs an increase by 14.6 percent, while Termoelectrica had requested a 43.5 percent increase in heat and Conel asked for a 59% increase in prices for electricity. Romgaz insists on an increase between 900-1,200 lei per cubic metre of gas. Another requested increase would have been for fuel, on one hand from the tax for the Special Roads Fund that went up from 25 to 45 percent and on the other hand, from the increase of world oil prices and devaluation of the domestic currency. RomTelecom had also announced that, starting April 1, it would increase tariffs for phone and telex services by an average of 17.62 percent, and tariffs for digital local and long-distance calls by 5.6 percent. Water and sewerage services would have been 15 percent more expensive. The existence of some exemptions from the payment of taxes to the state, irrespective of their nature, gives birth to distortions in the allocation of resources, Premier advisor Lucian Croitoru thinks, admitting that for the population, the introduction of this last tax is not “very friendly.” For social protection reasons, the Romanian Government postponed the enforcement of VAT for public utilities, too, until April 1, but the elimination of exemptions from the payment of this tax was absolutely necessary, Croitoru maintains. “As a long-term objective, Romania will have to make the VAT system consistent with the standards of the European Union within the respective domain,” says Diana Georgescu, senior consultant with counseling company PricewaterhouseCoopers. In France and Germany for example, services tariffs are not VAT exempt. In these cases, VAT stands at 22.6% and 16 percent respectively, says Diana Georgescu. In Great Britain, however, policy in the sector is the reverse of Romanian strategy: while by September 1, 1997, VAT for utility services aimed at the population stood at eight percent, against the standard of 17.5 percent, the respective tax has dropped to 5 percent since then. The differentiated application of VAT for various types of goods and services, jewels or bread, for instance, is not “scientific” at all, Croitoru thinks. “There are other instruments for taxing facultative consumption as compared to the absolutely necessary consumption, such as excises,” he explains. According to sources within the Finance Ministry, revenues derived from indirect taxes account for almost 12 percent of the Gross Domestic Product. Practically, the value added tax and excises should this year contribute about 100,000 billion lei to the state budget, given that total revenues to the budget stand at about 236,000 billion lei.