The Emergency Ordinance, which also includes this news, was adopted in the Government meeting on 4thOctober.
One of the most important measures contained in this normative act is the application, starting with 1st November 2018, of the reduced VAT rate of 5% for several categories of services, as follows:
- accommodation in the hotel sector or similar-function sectors, including rental of camping grounds (currently subject to 9% VAT)
- restaurant and catering services (currently subject to 9% VAT)
- the right to use sports facilities for the purpose of practicing sport and physical education (currently subject to 19% VAT)
- services consisting of allowing access to balchiks, amusement parks and recreational parks (currently subject to 19% VAT)
Extending the application of the 5% VAT rate in the area of certain services will generate a significant impact, mainly in tourism, recreation and the hospitality industry, represented by the HORECA sector (hotels, restaurants, cafes).
Regarding local tourism, ANAF is facing, in the last years, a high level of tax evasion. The measure to reduce the VAT rate from 9% to 5% for hospitality services should be an incentive to bring undeclared revenues to the surface and thus to pay VAT to economic agents.
A direct effect of this measure for business in the field would be the potential reduction in gross tariffs, which would increase the occupancy rate of accommodation units.
It remains to be seen if this fiscal measure will translate into a real reduction in service prices starting on 1st November.
And even if we do not see such an approach on the part of the economic agents and the level of tariffs will be maintained, it is interesting to see how companies will use the revenue surplus achieved (as a result of the difference in the VAT rate).
This surplus can be used to make additional investments in these units (eg hotels and restaurants) or perhaps even increase employee wages.
Unfortunately, not everyone wins these legislative changes, because some businesses will not be able to benefit from a reduction in the VAT rate.
Here we refer to the definition of restaurant and catering services in the Fiscal Code. Only agents demonstrating that they provide a wider range of services, not only provide food and drink, will be able to apply the reduced VAT rate of 5%.
An example of this is the food units that deliver food at home, but do not provide a space for consumption and do not offer related services (eg meal service).
So a pizza ordered and delivered at home will be subject to 9% unlike a pizza we enjoy at the restaurant. Why?
Because in the first case, we are talking about a food delivery that benefits from 9% VAT, while for restaurant services 5% VAT will be applied. Theoretically, it will be cheaper to eat at the restaurant than at home.
In the same note, there will also be discrimination between types of public food.
For example, a pastry or other small business that does not have space and does not provide related services (eg meal service) will not be able to apply a reduced VAT rate of 5%.
While a larger business, having a dining space and employing waiters, waiters, bartenders will be able to apply the reduced rate.
It is obvious that, in the context of the new changes, to apply a fair tax treatment in the food sector, it is necessary to define precisely the related services related to restaurant and catering operations.
Another change brought about by this ordinance is the reduction of the VAT rate from 19% to 5% for recreational services, ie access to balchiks, amusement parks and recreational parks, as well as the use of sports facilities for practicing sport.
The measure is welcome, as Romania has a significant potential in the area of recreational parks and recreational parks due to its natural relief and resources.
In addition, these sectors have benefited from consistent investments in recent years, materialized in the appearance of several parks of fun and adventure in different parts of the country.
Applying a reduced VAT rate of 5% is also welcome for the use of sports facilities to promote sport among the population that is one of the highest levels of sedentaryism in the EU, but also to increase the competitiveness of the services provided by the sports halls.
It remains to be seen if these well-intentioned tax measures will have the desired effect.
In conclusion, some clarifications are required, which are necessary for the successful implementation of these quota discounts. It is obvious that, at least in terms of increasing the VAT collection rate, the measure should have positive effects, given that, according to a recent study by the European Commission, Romania ranked first in the EU in 2016 with regard to the VAT collection gap.