EY: The fiscal environment in Romania will have to change

The fiscal environment in Romania will have to cha ge, not only because the European Union has our country in its sights as a result of the excessive deficit procedure, but also because a European state cannot function in the current system that Romania has, declared on Tuesday, Alex Milcev, the leader of the Fiscal and Legal Assistance department within the consulting company EY.   'One thing is sure, the fiscal environment needs to change. From different reasons, not only due to the pressure of the European Union, which is clear has Romania under scrutiny together with the other thirteen states out of 27 which got into the procedure of excessive deficit, but because in 2024 and 2025 a European state cannot function in the present system which functions in Romania at present. I am talking about collection to the state budget, of 27 - 28% of GDP, as the European average  is 40%. Let aloe the fact that the average hides extremes and extremes are closer to 50% even above. We are talking about France, Germanyand so on. So, clearly Romania is at the other end, I don't have the right word, the wrong end but clearly it is something that can't go on and I think everybody knows that. Probably the only reason for this not to be discussed is that we are in electoral campaign and probably such discussions when you discuss openly such matters can be considered damaging for the campaing', explained Alex Milcev during a meeting with the journalists.   He said that we should be careful about the political statements mentioned for some time ' as we will not have increased taxes'. ' What I see when  we look at the nuance of the political statements it feels like not an absolute statement but ' we will live and see what happens' and if something must be done and we will have some pressure about what we have to let go, justified or not, we will have to change some things' said the specialist.   According to him, Romania had a system that seemed to work, the flat rate, and this should be reintroduced, saying that there should be no exceptions.   ' The question is if there any chances for this system to be reintroduced. From the latest discussions with the political leaders it seems the chances are very high, despite the centre-left doctrine which speaks about  the introduction of progressive taxing, namely the PSD platform and about which I think we are going to hear more, especially after the elections. Their colleagues from the government, whether they leave or not, depending on how we approach the problem, of course they stick to this unique quota, but according to the political arrangements after the elections I think it is quite likely that the discussions can turn seriously in the area  of the progressive tax. Now, ti isnot only the desire of a party, there are also some studies done by the World Bank last year and the IMFthat do not necessarily impose such an idea but the promotied - quite persistent in the public space and in the government and in the business environment. So, ti's not something we haven't heard, it won't be a surprise. So, we should not exclude the option of introducting the progressive tax in 2025 adn 2026. Of course, in what form, what are the percentages, only simulations are made and certain discussions behind closed doors, let's say. It's not something immediately related to this system, but it's certainly not just a matter of talk, analyses are made in this matter' said Alex Milcev.   In his opinion, the introduction of this taxation system would be a regression compared to what we had until now. Milcev mentioned that if we study the experience of other countries, the  progressive tax is not ' a suitable answer for Romania in this state of development' .   Regarding the budget deficit, the representative of the company EY claimed that it is large and regardless of what the European Commission says, certain taxes and fees must be increased. In this context, he added that the VAT in Romania is approaching the average in the EU and a speculation that he heard unofficially including from the members of the governing coalition is to increase the tax by one or two percentage points. According to the quoted source, the measure is extremely efective, as it brings money to the budget immediately, but it will influence inflation. Another solution, in his opinion, would be the elimination of differentiated quotas or the reduction of their applicability.   At the same time, Milcev spoke about the reform of the local taxes, considering that this should have been done years ago. If more taxes are colected at the local level, then less money is redirected from the centre, meaning money that could be used elsewhere.   'If I had to bet, I would say VAT, maybe not January 1, but sometime during the year. It's very easy to do and after the elections it will be regardless of the reaction of the society or the economy, it really won't matter, the tax on income and if it was personal choice  I would have insisted on the reform of local taxes. But if the political decision is not going to be reversed after the elections, in the sense that we will still keep January 1, 2025, we will see in 2026' the department leader of Fiscal and Judicial Assistance of the EY consultancy company, Alex Milcev.