The 1.5% of GDP deficit for 2005 is the maximum level Romania can afford and could be decreased to make sure the inflationary and current account deficit targets are attained, IMF's resident representative in Romania Graeme Justice yesterday said.
"The budget deficit and inflationary goals for 2005 will be set at the end of January, when the IMF team that will perform the second and third revisions of the standby arrangement arrives in Romania," Justice said.
A series of provisions in the agreement negotiated with the former Government such as the fiscal ones will therefore be modified.
Justice said the new Cabinet's move to introduce a 16% flat tax for the incomes of individual taxpayers and to cut the corporate profit tax from 25% to 16% was in line with the regional trend to reduce taxation.
The IMF representative explained that according to the estimates of the Government in Bucharest, the taxation curbing steps would result in the loss of revenue up to 1% of GDP. This loss will have to be compensated for by increasing other taxes or cutting expenses.
According to Justice, a number of countries that have arrangements with the IMF in progress have introduced flat tax quotas, with the overall trend being to concentrate the streams of budgetary revenue around indirect taxes.
The Government at the end of last year decided to introduce the 16% flat tax for individuals and companies.
Public Finance Minister Ionut Popescu last week said that the tax cuts from 25% to 16% for corporate profits and from 18-40% to 16% for individuals' incomes would lead to a decline in the state budget revenues by 31,000-32,000bn ROL, 24,000bn ROL of which caused by the reduction of the individuals' income tax.
To compensate for these losses, the Government introduced a series of tax raises. To that end, it abrogated the social security contribution cut from 49.5% to 47.5%, which would have seen the budgetary revenues shrink by about 9,700bn ROL.
At the same time, the doubling of the tax on the revenues made by microenterprises from 1.5% to 3% of the turnover will secure a further 5,400bn ROL.
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