Against a fragile economic backdrop marked by inflation, a budget deficit and pressure from international institutions, the Romanian Government has announced a measure with major implications: raising value-added tax (VAT) from 19% to 21%. Although presented as a fiscal necessity, the decision brings a series of knock-on effects that will significantly influence citizens’ day-to-day lives, the business environment and the national economy as a whole.
What is VAT and why does it matter?
VAT is an indirect tax charged at every stage of the economic chain, from producer to consumer. In Romania, the standard rate was 19%, one of the lowest in the European Union. Raising it to 21% may appear insignificant at first glance, but it has considerable implications.
For more information on the economy, see Inflation is falling only on paper: Romanians are still paying huge prices on store shelves, which provides complementary details on this issue.
The purpose of the VAT increase: covering the budget deficit
Romania is facing a budget deficit that risks exceeding the critical threshold set by the European Union. Authorities justify the VAT increase by the need to raise additional revenue for the state budget. Each additional percentage point of VAT is estimated to bring in approximately 7–8 billion lei annually.
Impact on prices and inflation
An increase in VAT automatically means higher prices for goods and services. For example, a product costing 100 lei before VAT will cost 121 lei rather than 119 lei. The difference of 2 lei may seem small, but across hundreds of items in a monthly shopping basket, the impact becomes significant.
The National Bank of Romania estimates that the measure will contribute an additional 1.2–1.5 percentage points to inflation in the six months following its implementation.
Which products will be most affected?
Essential products, including food and medicines, will be affected differently depending on whether the reduced or standard rate applies. However, in the absence of tax compensation or price caps, these categories will also face indirect increases through higher production and transport costs.
- Food products: will become 1–3% more expensive on average;
- Fuel and energy: will immediately reflect the VAT change, with knock-on effects on all other prices;
- Services, including transport, telecommunications and tourism: will see gradual price increases in the coming months;
- Real estate: will be directly affected where purchases include VAT, particularly new homes.
Reaction from the business community
Romanian entrepreneurs, particularly in retail, hospitality, construction and related sectors, have reacted with concern to the decision. Many say they cannot absorb the VAT increase and will have to pass it on to consumers. Small and medium-sized enterprises, which operate on narrow margins, will be most exposed to the risks.
“This measure comes at an extremely bad time. Costs are already high, and customers are increasingly price-sensitive. We will have no other option than to raise our rates,” said Andrei Rusu, an entrepreneur in courier services.
What will the effects be on the population?
Romanians on low and middle incomes will feel the impact of this measure most strongly. Any VAT increase is directly reflected in the cost of living. Families will have to cut spending or give up certain products and services. In the long term, this pressure could reduce domestic consumption, with negative effects on the economy.
Comparison with other EU countries
Even after the increase, Romania will remain below the EU average for the standard VAT rate. Hungary, for example, has a rate of 27%, Poland 23%, France 20% and Germany 19%. However, these countries have social and fiscal policies that mitigate the impact on vulnerable groups.
The alternative: reducing public spending?
Critics of the measure argue that the Government should have reduced unjustified budget expenditure, including special salaries and pensions, inefficient investments and public procurement, before raising taxes. Transparency in public spending and making the state apparatus more efficient remain consistent demands from civil society.
When will the measure take effect and how can people prepare?
Under the draft law approved by the Government, the new 21% VAT rate is due to take effect on 1 September 2025. In the coming weeks, authorities will publish the implementing rules, while businesses will need to update their accounting systems and displayed prices.
- Consumers are advised to bring forward certain purchases before the new rate takes effect;
- Companies must inform customers about price changes;
- Public institutions will need to adjust their operating budgets.
The increase in VAT from 19% to 21% is a fiscal measure with complex effects that will influence every segment of society. While it will generate additional state-budget revenue, it risks affecting consumption, fuelling inflation and putting pressure on vulnerable groups. If it wants to avoid a wave of social discontent, the Government must communicate transparently and implement compensatory measures for those affected.
