Romania’s economic landscape shows mixed signals in 2024. While inflation is falling, it remains the highest in the EU. Industrial output and consumer prices are comparatively low, and tourism is rebounding. The World Bank forecasts moderate growth, but challenges persist with fiscal policies, e-invoicing implementation, and preparation for potential Eurozone entry.
In the past month, Romania has seen significant legislative changes, particularly in the field of taxation. Let’s delve into the most significant once:
RO e-TVA Changes
Romania’s RO e-TVA system undergoes changes in 2024. Initially mandatory from July, it’s now optional until December 31, 2024, becoming mandatory from January 1, 2025. The implementation of pre-filled RO e-TVA returns has been postponed to January 2025. Deadlines for e-Transport and e-Factura systems are also extended. The finance minister initially offered a 3-month grace period but later extended it to 6 months due to business pressure.
Also, this GEO adjusts the non-taxable income calculation to maintain benefits despite minimum wage increases. From July 2024, meal vouchers and allowances are excluded from the RON 4,000 monthly ceiling for the RON 300 non-taxable amount. Additionally, foreign cultural institutes in Romania and their suppliers have a one-year grace period for mandatory e-Factura system use.
Minimum Wage Increases in July to RON 3.700
From July 1, 2024, Romania’s gross minimum wage increases to RON 3,700 per month, excluding bonuses and allowances, as per Government Decision 598/2024. Simultaneously, GEO 59/2024 raises the non-taxable ceiling of the gross minimum wage from RON 200 to RON 300, effective July 1 to December 31, 2024.
Inflation Down to 5.1% in May
Romania’s annual inflation rate dropped to 5.1% in May 2024, down from 5.9% in April. While prices continue to rise, the pace has slowed. Prime Minister Ciolacu boasted about the sharp decrease from 17% in November 2022, claiming it as the EU’s most significant drop. However, Romania still has the EU’s highest inflation rate, and Ciolacu’s claim is inaccurate when compared to countries like Hungary, which saw a more dramatic inflation decrease in the same period.
Romania Does Not Fulfil the Conditions for the Adoption of the Euro
The European Commission’s 2024 Convergence Report indicates Romania is far from adopting the euro. With an inflation rate of 7.6%, well above the 3.3% reference, and a budget deficit of 6.6%, exceeding the 3% limit, Romania falls short of key criteria. High unit labor costs, long-term interest rates averaging 6.4%, and unpredictable fiscal policies further hinder progress. Romania fails to meet any criteria for euro adoption, making this goal unlikely in the near future. The report highlights the need for significant economic and fiscal reforms to align with Eurozone standards.
EU Calls for a Tighter Fiscal Policy
The European Commission’s report urges Romania to tighten fiscal policies and reduce its budget deficit. It calls for a medium-term structural-fiscal plan and immediate adjustments. Despite expected revenue growth in 2024 due to economic factors and tax measures, the EU demands accelerated implementation of Cohesion Policy programs and the Recovery and Resilience Plan. The Commission emphasizes completing reforms and investments by August 2026, while improving governance and administrative capacity.
Future Prospects
Finance Minister Marcel Boloș announced new measures to digitalize Romania’s tax system, including the RO e-Proprietatea database for property tax based on market values, effective from 2026. Additionally, a Single Smart Declaration for self-employed individuals and anti-fraud modules for fiscal inspections are planned for implementation by 2026.
Prime Minister Ciolacu promises a post-election “tax reform” without tax increases, despite pressure to raise VAT. He claims increasing VAT would be unfair and inflationary. However, Ciolacu provides no details on the reform or the source of pressure. Given election spending and growing deficit, tax increases seem likely despite his assurances.
Despite promises of no new taxes, July 1st sees a second fuel excise duty increase this year. Gasoline prices rise by 40-43 bani/liter, including VAT. This measure aims to reduce the budget deficit but may lead to higher prices and inflation, maintaining Romania’s monetary policy interest rate at 7%
Conclusion
Romania is undergoing significant legislative and economic changes. Tax reforms, including RO e-TVA and e-Factura provisions, are being implemented and adjusted to accommodate business pressures. The minimum wage is set to increase, while the government faces challenges with high inflation and meeting euro adoption criteria.
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*This is native article supperted by Issue Monitoring.
