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Market survey: What would the reduction of VAT mean for the Romanian meat sector?

Autor: Ilie Stoianluni, 7 octombrie, 2013

At present, Romania is among the countries which has the highest VAT on meat from Europe, after Hungary – 27%, and Denmark – 25%. Meantime in Ireland and UK the VAT for meat is 0, fact that determined the former Executive Director of the Romanian Meat Association (RMA), Mihai Visan to write at the end of last year in the Bulletin of the Association: „The European countries put reduced taxes on food from two major reasons: common sense for consumers and economic sense to the market and taxation system which is simple and generalized.

In return, at the moment when the decision on reducing VAT on bread was taken, the current spokesman of RMA and president of the Federation ProAgro, Alex Jurconi made the connection with the high level of tax and one of the worst effects found in the past two years, the increase of tax evasion up to unbearable limits: „Of course we know who are the fraudsters, but we cannot point them and is not within our power to prove this, is the state authorities’ responsability. Is not up to us to point the fraudsters, we can instead show to the state authorities how to look for tax evasion. It has to be created a system against tax fraud, because there are operations that are not registered. The eventual postponement of reducing VAT on basic food, in particular meat products is detrimental to the consumer as well to the producers and processors but, as we believe, to the state itself which loses also as a result of consumption decrese and, thus  to the economical activity generating taxes.”

But, for the sake of the sector, some market players believe that simply reducing VAT on products is not enough. For example, Mr. Viorel Marin, President of ANAMOB says: „More beneficial for the Romanian state would be a 9% VAT for the entire product chain, rather than the reverse tax. 9 % is greater than 0 and anything is greater than 0.

Nobody is pessimistic

In addition to the general picture, we addressed two questions to other managers from the Romanian meat processing sector as well. Below are the questions and their answers:

1: What do you think will be the benefits for the Romanian meat sector if it is decided to reduce VAT from 24 to 9%?

2: What will be the consequences of this decision for your company?

Dr. Bodea Gheorghe, General Manager AVE IMPEX-SATU MARE

R1: For the whole industry, the reduction of VAT on meat products at a similar level like the one for bread, at 9% would contribute at the significant reduction of meat trade without proper documentation, thus reducing tax evasion.
R2: For Ave Impex, reducing VAT would increase sales and would signify better price stability in the market.

Grigore Horoi, CEO Agricola International

R1: We believe that Romania can progress very quickly just „copying” what the advanced countries have already done. Notice that, with few exceptions, the VAT rate on food is differentiated in most European countries. First, it is not excluded that the price paid by consumers to be smaller. Law itself cannot compel the price drop, but it is enough for a manufacturer to do this and the others, in order to sell, to do the same.

R2: On the other hand, if the price would be lower, turnovers would increase. Recently, at the meeting „Isărescu and friends” it was shown that the sources of economic growth of Romania are: higher domestic consumption, more investments and export. The reduction of suffocating tax evasion is another major benefit attracted by such a measure. For the honest operators in this sector suffocation may cause death!!! It does not have to be neglected the fact that high VAT rate reduces the price adjustment „space” when economic conditions are unfavorable and it is required this adjustment. See for poultry and livestock producers: the very, very big cost of basic resources (2009 vs. 2012: +145% for grains, + 55% for soybean feed, + 91% for oil), while the price of the finished product could only increase by + 17%, covering only inflation!

Dir. ec. Narcisa Nicșan Caciur, SC NICȘAN CĂLINEȘTI SRL

R1: If the reduction of VAT on meat will occur, this will have a positive impact in terms of increased sales, as well as consumption and production increase.

R2: For our company, reduced levels of VAT would mean, in the first instance, lower taxes and higher turnover.

Diana Crăciunescu, General Manager SC DIANA SRL

R1: As is discussed already in the economic environment, the benefits will be the same as those expected once with the reduction of VAT on bread production chain. We all hope that there are serious scientific modeling that preceded this decision, predicting its consequences: lowering the price of the final product and more consumers to have access to it, on the one hand, and uncovering illicit production, which may compromise the quality of final products, as we already know. So, we expect as everyone, positive effects expected behind lower tax on bread and we prepare for expanding this decision on the full range of meat products.

R2: It is possible that the decision to lower the value added tax on the chain of meat products, to give access to a greater number of consumers to these products. Consumption of more units of product means an increase in production, and for the entire chain, development. Higher production capacities, more jobs. This is the meaning that our company always gave to the scarce tax indulgences occurred. Bringing legalization of illicit manufacturers can only eliminate unfair competition on price on the market. The questionable quality of the products that come from the black market jeopardize the confidence in the entire meat production, as seen on several occasions in the past. For over 20 years of existance of our company shows that Diana always relied on growth while maintaining good quality of products regardless of the competition that has met on the market. So, quality at affordable prices an more jobs. These may be the consequences.

VAT reduction will mean cheaper products on the shelves

Given the above presented, if someone from the Ministry of Finance would be curious to see what were the “good” effects of VAT increase and put all the data in an economic model to calculate the effect the economy, will certainly be surprised to see that the „benefits” were swallowed by the negative effects of this measure.

Under these conditions, lowering VAT on meat and meat products could be the beneficial measure sought for so long by the previous governments to restart the engine of the sector. And despite some opinions expressed in the press and in the economic environment where it is said that VAT reduction will not be seen to the prices on the shelves, there is a real chance that, in fact, to be produced the effect hoped by all, lower product prices.

Reducing VAT on basic food will reduce prices by at least a fifth. Competition between producers in the meat industry is fantastic at the moment. Production capacities are currently ten times higher than the market demand,” declared Radu Timis, owner of sausage manufacturer company “CrisTim” and Vice- president of  Romanian Meat Association at this year’s International Conference Meat & Milk.

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