Gabriel Biris: The tax plan indicates an increase in the flat rate to 16% from 2025; VAT to 21% from 2026

Romania's Medium-Term Structural Medium-Term Fiscal Plan indicates an increase in the single tax rate to 16% from 2025, from 10% at present, and in the Value Added Tax (VAT) to 21% from 2026, said Gabriel Biris, tax specialist, partner at Biris Goran and founder of The Tax Institute.     ‘We are in a very delicate situation, we the taxpayers who have to stand any amendments of the fiscal legislation as we do not know what to expect. None of the main parties came with concrete measures. They talk about general things: we will reduce expenses, we will improve collection, we will reduce the deficit. At present, it is hard to speculate. It is possible to finish the year with a deficit towards 8% which means that the discussions in Brussels, a gradual decrease of the deficit for a period of seven years, with 0.7% per year could generate the need for adjustment in 2025 and the discussion we could have is if it could be done through tax increase only. An adjustment of the deficit by 0.7% of GDP and even over 1% of GDP may be easily made without any increase of the taxes’ Gabriel Biris said.   He says that an adjustment by 0.7% of the deficit and even a doubling of this figure could diminish the fear that there will be extraordinary amendments as well as the increase of the VAT.   "If we look at the material that has appeared in the press, which is not official, because it has not been officially recognised, at the indicators on budget revenue and its structure, on page 14, we see that in total tax revenue we have 16.2% of GDP estimated this year, we have 17.2% next year. It's not an increase that we need to worry about, it's just a bit shocking that we have an increase from 2.8 per cent to 4 per cent of GDP, that's 1.2 per cent of GDP, that's a 40 per cent increase in revenue on the payroll and income tax. Should they prepare to increase the flat rate? Because I don't think they have the capacity to introduce a progressive rate from next year. I think that becomes the main fear, the income tax increase. Let's not forget that until 2017 we had 16 per cent. It was lowered by Dragnea to 10%, but it was lowered to compensate for the increase in contributions. The transfer of contributions was also done then. And for the transfer of contributions from the employer to the employee to have been neutral, the CSA had to be 21% and they made it 25%. CASS should have been 8.8% and they made it 10%. And to compensate for this transfer from the state budget to the pension budget, in particular, to show that they have the money to increase pensions, they lowered income tax. The total burden on labour remained the same", explained Gabriel Biris.   Besides this, the specialist in fiscality mentioned that there is ‘ a weird increase’ seen in the Fiscal Plan for VAT, starting with 2026.   "In 2024 VAT is 6.8 per cent of GDP, in 2025 it stays the same, so we don't expect any change, but in 2026 it increases to 7.3 per cent. Why? We have an increase of 0.5 percentage points, which if we relate it to 6.8% is 8%. Year on year you can't really do it, in the current context, except through tax increases. Why do I say that in the current context? We can see that none of the measures taken in the so-called fight against evasion, nor the recent various RO-e-e, such as RO e-TVA, have led to a reduction in the VAT gap, it has been constant, over 33%, sometimes towards 40%. 6.8% represents two thirds of what can theoretically be collected. I believe that from 2026 VAT is increasing. The VAT gap can only be reduced by reverse charge. The minister (Finance Minister Marcel Bolos, editor's note) told us at the last meeting that 35% of the VAT gap comes from carousel fraud, i.e. 3 billion euros, and another 3 billion euros from insolvencies", Gabriel Biris added.     In this context, Biris considers that we can expect increase of the flat rate of 16% starting with 2025 and VAT increase at 21% starting with 2026 and the impact of these two measures will be felt by consumption mostly. The specialist calculates the impact of VAT increase with a percentage point on consumption and three percentage points on income tax. The effect will be felt especially with people with small and medium income, but less with those with high income, he says.   Similarly, he added that he does not see a problem in implementing these measures as the introduction of the flat rate of 16% was done through an emergency ordnance on 29 December.