Romanian Factoring Association: “The new split VAT payment system will lead to bottlenecks in the economy”

The new split VAT payment system that the Government intends to implement as of 1 October 2017 will cause major difficulties with regards to the companies’ cashflow, because the proposed ordinance draft will hinder the financing of the VAT component through factoring or other account receivable assignment-based financing solutions.

By nature, factoring is a financial solution that also involves the financing of the VAT component in the assigned invoice, directly supporting the companies’ need for liquid assets and contributing to the enhancement of the economic agents’ payment discipline.

Factoring has proven to be a viable financing alternative, with volumes that doubled on the Romanian market over the past 3 years, to reach more than Eur 4 billion at the end of 2016.

In the context of the new ordinance draft, it will no longer be possible to resort to factoring for the financing of the VAT, which will affect the companies’ liquid assets and that especially applies in the case of SMEs. “All cashflow calculations will have to be adjusted downwards because the VAT part of the invoice can no longer be financed. In fact, those who devised this draft failed to also provide, in the format currently available, a solution for the financing of these companies under the new circumstances”, states Bogdan Roșu, Chairman of the Romanian Factoring Association.

Hence, we believe that a thorough review of the impact the new VAT collection system will have over the business environment is highly necessary. Moreover, a clear mechanism for the financing of the VAT in the future should also be established, whether it is through factoring solutions, and/or through account receivable assignment-based solutions meant to prevent the anticipated cashflow bottlenecks.

ARF draws attention on the very short-termed implementation of this new VAT management system and believes that this ordinance draft will not generate the sought benefits for the Romanian economy as it currently is.

“The ordinance draft is a useful one, in theory, but it still needs to be tested, documented and further developed, because, otherwise, it could block the economy in a period when companies need support.

VAT evasion is a big issue, but such an ordinance will impact all honest economic agents, while the envisaged goal of increasing VAT collection levels is still uncertain.”

Through this viewpoint, ARF requests the Ministry of Finance to reconsider the ordinance draft launch date, which shall be no earlier than the confirmation is received that sufficient technical and economic resources are available for its implementation. It is of utmost importance that the measures proposed do not create the image of an uncertain and unpredictable Romanian business environment”.