The Romanian government has decided to promote the consumption of healthy and traditional foodstuffs by cutting their VAT rate from 9% to 5%. EURACTIV Romania reports.
“In order to encourage the consumption of healthy food and boost sales of Romanian traditional, mountain, ecological, organic or other types of products authorised by the agriculture ministry, the government decided to reduce to 5% the VAT rate for the sale of food products, including drinks, but excluding the alcoholic beverages,” Finance Minister Eugen Teodorovici said on Tuesday (14 May).
The government estimates that the measure will create budget losses of €175 million over the next four years but insists that it will be crucial in supporting domestic consumption of high-quality food products because it will reduce prices and increase sales.
“It can contribute to a price reduction for the consumers, taking into account that the price of this kind of merchandise is usually steeper than those of similar products due to high production costs,” a government document noted.
The government said consumers were increasingly interested in high-quality food, which has generated demand for specific products, such as those that do not include synthetic additives.
In addition, it said high mortality rates and increasing obesity, especially among young people, have raised the alarm.
According to the State of Health in the EU report, Romania has the second highest mortality after Bulgaria, with 1,530 deaths per 100,000 inhabitants, while the European average is 1,036 deaths/100,000 inhabitants.
Cardiovascular and cerebrovascular diseases are the main cause of death.
Although Romania has the lowest obesity rate in the EU at 9.1%, the rates among adolescents have more than doubled in the past decade.
The general VAT rate in Romania is 19%, while the reduced rate is 9%. However, some products and services, such as books, medicines, tourism services and new housing, are taxed at 5%. The VAT is the most important source of income for Romania’s budget, contributing around one-fifth of the budget revenue.
The European Commission, contacted by EURACTIV, declined to comment “on member state plans.”
However, EURACTIV was informed that member states are in general free to apply reduced rates to foodstuffs.
They can also reduce VAT rates for (even a very small) part of foodstuffs or apply different reduced rates to different sub-categories of foodstuffs, provided that similar goods available on the market are not getting a different tax treatment (the fiscal neutrality principle).
The Commission has made a proposal for an overall reform of the rules governing VAT rates, which would give member states much more flexibility to set rates as they see fit. A unanimous decision by EU countries is needed for this reform to pass into law.
[Edited by Sarantis Michalopoulos]