Acta Universitatis George Bacovia. Juridica - Volume 5. Issue 2/2016 - http://juridica.ugb.ro/ - Ionel BOSTAN = ISSN 2285-0171 ISSN-L=2285-0171 Changes and additions to the Tax Code: possible effects of reducing the Value Added Tax (VAT) rate to certain categories of benefits Ionel BOSTAN, Ph.D Stefan cel Mare University, Suceava, Romania ionel_bostan@yahoo.com Abstract: Through this initiative we intend to actually achieve a critical approach to bringing about an extension - through legislation - the scope of the reduced VAT rate, without sufficient substantiation of that measure. Risks that may occur are related to the issue of sustainability of public finances. However, in the final part of the thesis we reveal a number of aspects regarding the budgetary impact of the legislative measure at issue here, given the extremely mitigated fiscal space of the adoption of such formulas of fiscal relaxation, reporting to the current targets of budget deficit in context of restrictions (preventive action) derived from the Growth and Stability Pact. Keywords: Council tax; initiative legislative; budgetary receipts; reduced VAT rate; the sustainability of public finances. 1. Introduction Based on the teachings of Adam Smith [1], Laffer concluded that tax rate changes may have on tax revenues and other economic arithmetic effect [2]. As already stated in a previous work of ours [ 3], the first effect is explained by the decrease in the tax rate attracts clearly a loss of tax revenue and otherwise, increase it will cause revenues tax collected per unit of taxable income to grow. As for the economic effect, it causes a positive impact of lower tax rates on labor and production and thus the tax base, but an increase in the tax rate has opposite economic effect, namely the participation of subject’s penalty taxable activities. In practice, as it notes and other Romanian scholars have problems taxation [ 4, 5], the effect of arithmetic will always act to reverse the economic effect and the question that arises is the difficulty in determining that point of optimum respectively tax burden optimal clearly located between two extremes of the tax rate - "very small" and "large", but hard to say where. Obviously, a reduction of taxes / duties would be, in many respects, as is very welcome, but when attempting fiscal easing should be considered a multitude of constraints. As an EU member state, Romania, beyond the question of whether the margin realistic sliding tax / budget should consider restrictions (preventive) derived from the Stability Pact and Growth [6] and the Treaty on Stability, Coordination and Governance in the Economic and monetary (fiscal compact) [ 7] implemented in national space on fiscal responsibility Law no. 69/2010 [8]. However, it is certainly in the case of the Romanian economy [3], that politics reduce the level of taxation remains conditional on the development of the real economy, marked by such GDP growth "that can support increasing budget revenues that otherwise would be done by increasing existing tax rates or introducing new taxes" [5]. 2. Tests fiscal relaxation on the way of settlement of extending the application of reduced VAT rate of 9% for some services As adopted in 2015, Law no. 227/2015 regarding the Fiscal Code [9] does not provide for the application of reduced VAT rate of 9% for services such as sanitation, production, transmission, distribution and supply of heat in a centralized system, electricity supply, gas supply and public service localities sanitation. But after a parliamentary initiative in the current year was targeted modification of the Fiscal Code. This legislative initiative targeting several changes and additions to Law no. 227/2015 regarding the Fiscal Code. Punctual, according to the text already adopted by the Romanian Senate, they are [10]: