Croatia’s governing coalition to push ahead with tax system reform

Croatian Prime Minister Andrej Plenković said in October there was no alternative to tax reform, but warned it was in the balance, Novi List wrote.
Croatia’s governing coalition to push ahead with tax system reform

(James Stringer, CC BY-NC)

Finance Minister Zdravko Marić presented the government’s tax reform plan at the first session of the new cabinet and members of the HDZ Parliamentary Group and the MOST Parliamentary Group were informed about it and all details about the reform will be made public when the proposals arrive before the government and parliament. “I am sure that we will find a solution that will relieve businesses and allow more citizens to have higher incomes,” said Plenković.

Plenković said a key aim of the reforms was to allow young professionals to earn higher salaries, and encourage them to stay in Croatia.

Nuts and bolts

Marić said the planned tax reform would focus on income and profit tax breaks, which he said would result in a broader tax base and stimulate economic activity.

„A simpler tax system and certain tax breaks will definitely be good news for investors and business people in Croatia,” Marić said.

„Tax breaks will refer primarily to direct taxation, the system of income and profit taxes. It is good news for entrepreneurs and citizens and it is one of the measures we believe will broaden the tax base and stimulate economic activity,” he continued, also announcing a number of measures aimed at “facilitating business operations and removing obstacles,” both at the central and local levels, encountered by business people.

Asked if the tax reform would be implemented by the start of 2017, Marić said that he was optimistic it would. „I expect us to have time or at least create some room for a brief public debate because this is a comprehensive tax reform and it is always good to hear different opinions,” he said.

Social Democrat member of Parliament Branko Grcić, who was Regional Development and EU Funds Minister in the SDP-led government, said he expected the new government to adopt a set of laws that would reform the tax system and reduce VAT and income and profit taxes, noting such measures would help increase competitiveness, income and personal consumption, but would also pose a challenge for the state budget.

„The promises regarding the laws related to tax reform are great but the reform is also an additional challenge for the state budget. If we considered only the current state of the budget and disregarded the challenges that await the government, it might not be too much,” Grcić said.

Speaking of the challenges awaiting the new government, Grcić cited a 3 billion kuna debt in the health system, the uncertain outcome of arbitration proceedings between INA and MOL and a debt of more than 3 billion kuna related to a gas contract, as well as an increase in salaries of school workers of almost 2 billion kuna annually.

„The promise of about 180,000 new jobs during the term of the new government is a big challenge and we will watch closely if that will be the case. As for the 5 per cent economic growth forecast, that is really high. Even though I wish the government, Croatia and its citizens success in achieving these goals, because that would mean higher living standards, I am a bit sceptical,” Grcić said.

Marić said that it was estimated that the budgetary impact of the proposed tax reform in the first year of implementation would amount to approximately HRK1.8 to 2bn. Its implementation will require changes to 15 laws, of which seven should be completely replaced.

About 1,660,000 people work in Croatia. With the minimal wage of about HRK3,200, some 10 per cent of the employed earn a minimum wage and pay no income tax. There are about 1,320,000 pensioners in Croatia and probably half of those fall within the income tax-free bracket.

(James Stringer, CC BY-NC)

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