VAT 0 on housing purchases: too nice to be true?

Government representatives are considering stimulating the construction sector and bringing it back to the pre-crisis level. At the moment, there is a bill on the table of the Parliament that is worthy of the attention of potential home buyers. Initiated by the PSD president, Liviu Dragnea, he foresees, among other things, the application of a reduced VAT rate of 0% for the "delivery of dwellings, including the land on which they are built, to individuals". "The measure is aimed at ... facilitating the access of the population to a dwelling without VAT," the explanatory statement of the legislative proposal shows. It is worth mentioning that the current norms already provide for the application of a reduced rate of VAT, amounting to 5% of the value of the property, but only for transactions of up to 450,000 lei (about 100,000 euros); for purchases exceeding this amount, the normal VAT rate is 19%. (A buyer can only benefit from this feature once.) In this context, it is to be expected that, if adopted, the application of VAT rate 0 will obviously have an important role to play in stimulating the Romanians' appetite for the acquisition of new housing. This is especially true if legislators decide to implement the measure for all types of transactions, including those that are now in the 19% VAT category. While sounding good in theory, this idea was not exempt from objections, one of the most important being linked to the effect of such a measure on the state budget. "Of course, if we talk to a financier, as we all know them, who are sitting and just gathering pluses and minuses without seeing the side effects, the first impression of a financier is that (...) we will have an important minus at budget ", Prime Minister Sorin Grindeanu acknowledged in a debate organized at the Real Estate Salon (held at the Palace of Parliament this week). However, the prime minister believes that the (positive) impact of this law will be seen at a later stage through higher receipts due to the stimulation effect of the real estate market as a whole - which will also contribute to reducing the Romanian housing deficit, about one million units. "I want this sector to come back where, let's say, it was ten years ago. Maybe I'm wrong as accurate, but the share of real estate and construction in the Romanian economy was an important one. With the measures that some of them have taken, others are about to be adopted, we want to boost this sector, "Grindeanu explained. Concerning the consistency of the proposed measure by the PSD with the European Union's provisions in the field, the prime minister said: "We are going to move on to legal steps to be as direct as possible. When we are asked by the Parliament for the Government's point of view, we will give it positive, and we support this project. We will notify the European Commission, because you know there are different VAT rules and there are some rules that we have to comply with. " In his view, this request would not be a "new thing", as there are countries with a different level of VAT in different areas. For now, those who want to purchase one or more new homes without paying VAT anymore can expect. Two things remain to be seen: the first - which will be the final form of the law and what transactions will concretely benefit from the 0% reduced rate; the second - which will be the European Union's reaction to the PSD proposal.