The FIC is disappointed by the Government's decision to raise VAT to 24% and believes it will have negative effects on the economy. We consequently call on the Government to implement a wider package of efficiency savings and investment incentives to offset the negative effects of the VAT rise and to promote growth.
The FIC acknowledges the difficulties the government faces in reducing the budget deficit. However, the VAT increase will deter investment, as it gives Romania one of the highest VAT rates in the EU. It will lead to a rise in inflation, a reduction in consumption and hence a slowdown in growth. It will cause the RON to depreciate, exacerbating inflation and putting increased pressures on those who have borrowed in foreign currency. It will increase tax evasion, and contribute to uncertainty on the financial markets.
In addition, the FIC is concerned about the very short notice given before this VAT increase is introduced, which is seriously disruptive to business. Today's businesses run complex IT systems which require time and money to be adjusted. The FIC calls on the government at least to take into account these implementation difficulties when it publishes the Norms to Government Emergency Ordinance 58/2010 which introduced the rise in VAT. In particular, the Norms should include transitional measures for the VAT treatment of services such as leasing, services supplied on a continuous basis, etc.
To offset some of the negative effects of the rise in VAT, and to stimulate growth, the government should implement a wider package of measures to encourage investment. The government should also further reduce public spending, reduce bureaucracy and improve efficiency in the public sector.
The FIC reiterates its disappointment with the VAT increase and calls on the Government urgently to implement the package of measures it has set out to encourage growth and raise budget revenue.
Mariana Gheorghe - President, Foreign Investors Council
Serban Toader - Vice President, Foreign Investors Council
The Foreign Investors Council (FIC) is an association of the leading foreign investors in Romania. The FIC was established in 1997 when it officially started its activity with 26 companies as members. Today FIC accounts about 110 companies whose cumulated investments in Romania represent approximately two thirds of the total foreign direct investments made since 1990. FIC includes multinational companies providing the Romanian economy with a variety of goods and services.|
The member companies of the FIC believe that the dialogue between policy makers and the investors lies at the very heart of successfully improving the climate for investment while stimulating the development of the Romanian economy.
The FIC is well positioned to provide constructive input to policy makers given the breadth of its membership, both in terms of their international experience and their substantial investment in Romania.
The management of the member companies devotes its time individually or in work groups, proposing solutions to the decision makers. FIC has produced six "White Books", setting out detailed improvements which it felt were needed in the business and investment climate, based on research and debate by FIC members.
Foreign Investors Council (FIC) - www.fic.ro
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