CFA Romania: the most likely is the VAT increase from 2025; the increase could be 2-3 percentage points  

Next year we could have an increase of VAT and the increase could be two or three percentage points, stated on Monday Alexandra Smedoiu, the chairperson of the Association CFA Romania, at the launch of the report ‘ FY25 Macroeconomic Outlook’ made by the association.‘This year it seems we are heading again towards a very big budget deficit, which means to have to think about the measures for next year. If we look at the composition of tax revenues, I would say that the most likely is an increase in the VAT area, value added tax, consumption taxation, because consumption is what has supported the economy so far and is also considered the least harmful tax, in the sense that it affects less businesses, investments and more the consumption area.So, from this point of view, I say that the most likely is the VAT increase. In addition, as a standard rate of 19% we are below the European Union average, which is 21%and there are, of course, many transactions that are made with reduced rates, 0, 5 and 9%. We will see a resettlement in this area, possibly. I expect these things to be discussed in the public area and announced in December probably. Of course, there is a change of government in December and this might be the reason for not having these things clear enough’, Alexandra Smedoiu said.She stated that the amendment might be applied from January 1, 2025. Alexandra Smedoiu mentioned that, if Romania does not take measures, there will be pressures on the part of international creditors and we will have to intervene during the next year.Similarly, she stated that the increase might be two or three percentage points, depending on the data at the end of the year.According to the CFA Romania president, the VAT increase affects everybody, but mostly those with low salaries, as at that level most expenses are for consumption. She stated that it will be interesting to see if there are compensatory measures on this side. In his turn, Adrian Codirlasu, vicepresident of CFA Romania stated that next year there could be an inflationary shock caused by the increase in taxation.  ‘So, from somewhere around 4.5% this year we may reach 6% inflation again, after which the disinflationary process will be resumed’ said Adrian Codirlasu.He stated that towards the end of the year we could go back to inflation of 4%.At the same time, he mentioned that this year there is another monetary policy meeting of the National Bank of Romania in November and a reduction of the interest rate by 25 basis points is possible and next year there are possible four or even more reductions, but everything depends on what happens with the inflation rate.According to the report, this year Romania could register an economy growth of 1.5- 1.7% and next year 1% or recession.