Changes made to consumption taxes (VAT, excise duty, tax on added sugar), as well as legislation on the limitation of commercial income will lead to additional efforts in interpretation and implementation, as well as numerous control measures and increase the risk of the application of some sanctions for manufacturers, suppliers, distributors and traders. In the new episode of PwC Romania Tax Talks, Ruxandra Târlescu, Partner, Inge Abdulcair, Director, and Cătălina Nacev, Senior Associate D&B Coordinator, David and Bayas discussed the practical aspects of VAT and excise changes, as well as ANAF and Competition Council monitoring and control measures.

Watch episode 2 of PwC Tax Talks:

Basic statements

• These rate hikes are taking place in an environment of high inflation. Because they will be reflected in prices fairly quickly, they will reduce purchasing power and consumption, affecting consumers, the public, as well as producers and traders.
• Similar to other EU countries such as Hungary and Croatia, the authorities have implemented price cap measures since the summer through GEO 67/2023 to support consumers hit by inflation. Practically, for certain products in the basic basket, the share of trade income is limited to 20% for processors and traders and 5% for all distributors in the distribution chain.
• The main challenge was understanding how to apply additional restrictions due to the specifics of the business model. The dynamics and operational flows in the food supply chain are extremely complex, and in this context the manner in which such a restriction applies varies from case to case.
• Both the Competition Council and ANAF, through the Anti-Fraud Directorate General, have been extremely active in monitoring and reviewing the way the Decree is applied, and we have seen cases of effective sanctions for breaches of additional quotas. We expect this control to continue in the future.
• A tax on drinks with sugar content also exists in other countries, such as France, Belgium, Portugal, Hungary, but in different versions. From January 1, 2024, we will introduce excise duties on sugar-added soft drinks with a total sugar content of more than 5 g.
• The application of different VAT rates causes problems with interpretation regarding the correct classification of goods. Which products are subject to a discounted rate? We have a link to Buns and Cookies: just buns? and panettone? Cookies with cream, without cream?
• Two aspects were put at the basis of the rate increase, namely their return to the standard level. The first is that Romania has major problems with VAT collection, and the application of reduced rates was motivated by regulations that were adopted over time, including to improve tax compliance. However, in the latest report on the VAT shortfall, the European Commission clearly stated that the reduction of some VAT rates did not help to improve collection.
• The second aspect is directly related to the collection deficit and concerns the expansion of the range of goods and/or services with reduced rates in recent years and the implicit reduction of the effective VAT rate for general consumption.

Article supported by PwC Romania