Paying VAT upon collecting the invoice - an official hoax

• Liviu Voinea: "Clearing of VAT for companies which paid this tax without collecting the due invoice would be rather costly and hard to manage"

The Government Ordinance which stipulates the payment of VAT upon collecting the invoice was officially published in the Official Gazette last week. Except that the regulation which will amend the text of the Tax Code is not what businesspeople were expecting.

In short, according to the new Government Ordinance, Value Added Tax will become due upon collection of the payment, but no later than 90 days from the date of its issue, according to Liviu Voinea, secretary of state in the Ministry of Public Finance.

In other words, the maximum deadline for a company to pay VAT to the state has merely been extended, not postponed until collection of the invoice, if the collection happens to take too long.

Moreover, about two weeks ago, Liviu Voinea was saying, that, if the VAT paying-company was unable to collect the invoice even after an additional 30 days, following the initial 90 days after the issuing of the invoice, the VAT paid to the state on the 90th day could be cleared with other amounts owed to the state budget. The new regulation no longer includes that provision.

The official of the Ministry of Public Finance said that the 30 days deadline during which time the VAT should have been settled with other debts was eliminated from the law because "it would have been quite hard to manage".

He said: We realized this would involve huge overhead costs and would also be very hard to verify. At any rate, the law can always be amended later. Next month we will also issue the guidelines for the law...I will also go to Poland, where this system is effectively used and it works, with a 90 days plus 90 days method (ed. note: VAT becomes due after 90 days and it can be settled with other debts owed to the state, if the company fails in collecting payment for the invoice)".

Businesspeople, who have been asking for years to be allowed to pay VAT after the collection of the invoices, and who were already skeptical about this measure ever since it was in the draft stage, are unhappy with its current form.

Ionel Blănculescu, the secretary general of the Advisory Council for the Business Environment considers that the new measure "essentially hasn't changed the current state of things".

He said: "On one hand, if the law had stipulated the settlement of the VAT in the 30 days, this would have wreaked havoc on the Treasury. Perhaps that is exactly why it isn't featured in the Ordinance anymore. On the other hand, the variant which was published in the Official Gazette is even worse, it basically isn't helping us at all. Whether we pay VAT within 25 to 55 days, or whether we do it in 90 days, it is the same thing, because we usually collect the invoices in 4-5 months. If they wanted to pass a measure like that, they should have worded it just like it sounds: < VAT upon collection >".

Cristian Pârvan, the secretary general of the Businesspeople Association of Romania (AOAR) is still skeptical when it comes to the implementation of this law.

"The ordinance will be implemented starting on January 1st, 2013. They could change their minds several times by then. They could publish a new ordinance that will postpone the implementation of this one. And what do we do if they do change their mind? It is a good thing that they are trying to implement it, but let's see if it gets to that and to see the manner in which it will be applied".

Mr. Pârvan said that 90% of the companies operating in Romania stand to benefit from the implementation of this Ordinance.

The requirement for companies to be allowed to pay VAT upon collecting the invoice is to have a turnover of less than 2.25 million lei. Any company which wants to implement this system of paying VAT after the collection of the invoice starting with January 1st, 2013 must submit a notification with the tax administration, stating that its turnover between October 1st, 2011 and September 30th, 2012 does not exceed 2.25 million lei. The notification must be submitted by October 25th, 2012 (including that day).

The new VAT regime also includes the postponement of the deductibility until the payment of the received invoices, both by eligible taxpayers, as well as by their beneficiaries.

Businesspeople have been skeptical from the start when it comes to the implementation of the measure which stipulates the payment of VAT upon invoice collection.

"The payment of VAT upon collection of the invoice is an exceptional measure, which will allow the optimal operation of the economy and which we have been asking for for so long, that it was getting annoying. It is too good to ever happen", said Ionel Blănculescu, about one month and a half ago, when the Government announced it was considering implementing this measure.

He said: "If the IMF has endorsed the austerity plan, which I have considered a mistake from the start, if it endorsed, among other things, the payment of VAT on excises, which is a fiscal aberration, and other such measures, it is clear that it will continue to endorse the payment of VAT upon invoicing. If running a simulation will reveal that this measure will affect the state budget, it is obvious that the IMF will not accept its implementation".

The representatives of the IMF have agreed to the adoption of the Ordinance in question during the meetings they had with our government in the beginning of this month. After the negotiations between the two parties on the form of the new measure, the text of the Draft Ordinance came to include the 90 days delay, which stipulates that if the VAT paying company doesn't succeed in collecting the invoice within 90 days, upon the expiration of that period, the VAT will become due, meaning that the company will nevertheless be required to pay the equivalent value of the VAT to the state budget.