IMF recommends Gov't to reconsider tax cut timing and size

The Government of Romania should reconsider the timing and the size of planned tax cuts, Andrea Schaechter, IMF mission chief for Romania, told a conference call on the release of the 2015 Article IV Consultations with Romania.

Photo credit: (c) Cristian NISTOR / AGERPRES ARCHIVE

"We are asking the question of what offsetting measures could be arranged to meet the fiscal targets over the medium term. So any tax cut plans should be accompanied by better achievement in terms of tax compliance, revenue collection, or offsetting measures. We think that at this stage the deficit target that is laid out in the budget is well in line with the targets that were also set out under the Standby Arrangement. For any additional tax cuts, offsetting measures need to be carefully considered so that these budget targets, which are a priority, can be achieved," underscored Andrea Schaechter.

The head of the IMF mission also said that the global lender supports the measures aimed at reducing the compliance gap between planned VAT collections and what is actually collected, cautioning that narrowing this gap takes both time and finding a compromise between aggressive tax cuts and the improvement of tax collections.
"Only about half of VAT is collected of what should be collected. So we are very supportive of measures that help reduce this compliance gap. But we also would like to caution that reducing this compliance gap takes time. So there's a tradeoff here of going ahead with a very aggressive large reduction in a tax cut as long as maybe not all conditions are yet in place; at the same time to improve the compliance and the tax collections. So one would have to very carefully balance these," Schaechter mentioned.

The IMF official also explained...