Government Presents Tax Reform

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Staring from 1 January, some taxes will be lower.

Prime Minister Andrej Plenković said on Thursday at the cabinet’s first session that the tax reform was one of the most important reforms to be implemented during the term of this government and he stressed the expectation that the reform would establish a stable, sustainable and predictable tax system, reports Večernji List on October 27, 2016.

“The current tax system in Croatia has certain negative characteristics that have led to its uncompetitiveness. It is too complicated in comparison with other countries in our neighbourhood. The high tax burden, a large number of exemptions, and frequent changes are the reasons why the tax reform has featured as one of the most important reforms to be implemented during the term of this government”, said Plenković. He noted that frequent changes in tax laws have created a climate of mistrust and uncertainty for businesses and investors.

“This tax reform is comprehensive. It shall seek to achieve the following goals: economic growth and employment, strengthening of competitiveness of Croatian economy, encouragement of demographic renewal, social justice, promotion of small and medium enterprises and agriculture”, said Plenković.

“The implementation of the tax reform should take into account the sustainability of public finances and financing of local government units, but also the realization of an important macroeconomic objective – general government deficit should be below 2 percent of gross domestic product in 2017”, said Plenković.

Finance Minister Zdravko Marić noted that the general corporate tax rate would be reduced from 20 to 18 percent, while corporate tax rate for farmers and businesses with revenues of less than three million kuna per year would be 12 percent. He also announced the abolition of tax relief for reinvested profits because it has been used by just a small number of entrepreneurs, said Marić.

In the income tax system, tax rates would be reduced from 25 to 24 percent and from 40 to 36 percent, while the non-taxable part of income would be increased to 3,800 kuna a month. According to the announcement, the tax rate of 24 percent would cover incomes up to 17,500 kuna a month, while higher incomes would be taxed at the rate of 36 percent.

“In the current system, about 900,000 people do not pay any income tax, and with the proposed changes that number will increase by another 560,000 people, so ultimately, in the new system, about 1.5 million people will not pay any income tax”, said the Finance Minister.

As for the value-added tax, starting from the beginning of 2018, there will be only two VAT rates – general rate of 24 percent and a decreased rate of 12 percent, said Marić. The Finance Minister also announced various other changes in the real estate sales taxes, excise duties, and a number of other tax-related laws.


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