FOR A 19% VAT TAX LEVIED OFF BREAD, The state loses triple the amounts collected

Cătălin Deacu

• A report by ANAMOB (Romanian National Association of Flour, Milling, and Baking Industries) shows that for a 19% VAT levied off bread, the state makes an annual 539.8 million lei and loses over 1.6 billion lei

In order to fight the underground economy in the food industry - which causes the government to lose about EUR 2 billion every year - the state has recently begun investigating grain traders, but the results are hardly spectacular.

So far, inspectors have issued two written warnings, issued fines worth 2600 lei and seized 300 kg of flour - and all this on a market where 70% of all trades are done off the books.

Producers and processors claim that companies doing business on the black market have again found ways to slip through the cracks.

Processors said: "As we know, the inspectors have begun their investigations, but those doing business on the black market are ingenious. On the way to Constanţa, where the goods are supposed to leave abroad, near Feteşti, there were endless lines of trucks, which were waiting for the inspectors to complete their investigations and continue towards their destination. While inspectors go on their lunch break they go on their way. And if inspectors prove too much trouble, they usually come to an agreement with them. On Tuesday there were 60 trucks near Feteşti which were waiting for inspectors to go on their lunch break, so they could travel carefree to the Port of Constanţa".

• VAT 6%, black market 0%

Spokespersons for processors show that if the state doesn"t cut VAT for this segment, tax evasion in the grain market will remain at its current levels, regardless of any inspection the state might make.

When asked by the press, Minister of Agriculture, Ilie Sârbu, said that this issue is still being discussed. Judging by the early signs, there is the possibility that the Ministry of Agriculture intends to cut VAT for bread, unfrozen chicken meat and unpasteurized milk.

A report that we received from the Romanian National Association of Flour, Milling, and Baking Industries (ANAMOB), (which was forwarded to the Government, the Ministry of Agriculture and the Ministry of Finance) claims that the state earns 539,898,818 lei a year from the current 19% VAT, and expects to lose three times as much - 1,626,919,909 lei a year - from uncollected VAT.

The same report shows that a VAT that is cut by 9%, will cause the black market to amount to only 20%, and the losses of the budget would be reduced to 788.792,455 lei a year, and increase collected VAT by 248,893,636 lei a year.

But the version that seems to be the one most likely to happen is the cut of VAT for bread to 6%. In this case, according to the quoted source, the black market would lose its weight to 0%, and uncollected VAT would drop to just 589,164,545 lei, and bring an additional 49,265,727 lei a year in collected VAT to the state budget.

"Tax evasion can"t be tackled just by doing inspections and not cutting VAT", processors said.

Spokespersons for grain processors say that without a VAT cut for the industry, tax evasion will remain unchanged.