ZAGREB, September 20, 2018 – The government on Thursday forwarded amendments to nine tax laws to parliament, including the VAT Act which should enable the easing of tax burden as of the start of 2019, and the effects of these changes are estimated at 1.4 billion kuna by expanding the lower VAT rate of 13%.
Amendments to the VAT Act foresee expanding the application of a lower 13% VAT rate as of 2019 on children’s nappies, livestock, fresh meat, fish, fruits and vegetables and eggs which has now the standard 25% VAT rate. The standard rate is supposed to be lowered to 24% as of 2020, which may increase disposable income by 1.6 billion kuna.
Amendments to the Profit Tax Act are being proposed to bring it in line with the EU Directive on laying down rules against tax evasion practices that directly affect the functioning of the internal market with reference to those sections that enter into force as of 1 January 2019.
Amendments to the Income Tax Act propose that the tax bracket be reduced from 36% to 24% for monthly wages up to 30,000 kuna. According to the current law, an advance income tax rate of 24% is paid for monthly wages up to 17,500 kuna.
The government estimates that this would mean a significant increase in wages particularly of workers in the high technology sector and qualified professionals such as doctors, IT experts and pharmacists which should curb the brain drain of highly-qualified workers.
The proposed amendments to the Law on Contributions recommends that the contribution for employment of 1.7% be abolished as well as the contribution for work safety of 0.5% while contributions for health insurance would be increased from 15% to 16.5%.
The revocation of contributions for employment would lead to a reduction of 2.2 billion kuna in the state budget’s revenue. Having in mind the abolishment of the contribution for work safety, an increase in health insurance contributions will offset this measure and eventually bring about 1.3 billion kuna to the budget of the Croatian Fund for Health Insurance. (HZZO)
Property Sales Tax, according to the proposed amendments would be reduced from 4% to 3% as of 1 January next year.
The main objective of the government’s tax reform package this autumn is to further ease the burden on private citizens and businesses, Prime Minister Andrej Plenković said at the start of a cabinet meeting on Thursday. “We have two major reform packages this autumn – one is tax reform, and the other is pension reform. The latter will be put up for public consultation most likely tomorrow morning. The total amount of tax cuts from January 1, 2017 until the moment the third round of tax reform comes into force will be about 6.3 billion kuna,” Plenković said.
He said that results on the revenue side of the budget showed that there was room for further tax cuts. “This is the way for sound public finance and the only right way a responsible government can take, and that’s why I think the proposed solutions are very good.”
He added that the government had decided to reduce the VAT rate as of January 1 from the current 25 percent to 13 percent for products of vital importance for most people, including fresh meat, fish, fresh fruit and vegetables, and nappies. “I think the effects will be very good and positive,” the prime minister said.
