Parliament Adopts Tax Reform

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Starting from 1 January, big changes are coming to Croatian tax system.

After opposition parties led by SDP, dissatisfied with the rejection of their amendments, left the parliamentary chamber on Friday, Parliament adopted with a majority vote a package of tax laws which will come into effect on the first day of the next year, reports on December 3, 2016.

The reform package includes changes to the Law on Income Tax. Thanks to a government’s last-minute amendment, children, spouses and other family members will not pay income tax on pension savings inherited from the second pension pillar. Such provision was included in the final text of the proposed law, but the government sent its amendment at the last moment before the vote.

Finance Minister Zdravko Marić rejected all the amendments to the laws proposed by other parties, including his coalition partners MOST. One of the amendments tried to extend the statute of limitations for the so-called “penalty tax”. The government proposed the statute of limitation of 6 years, while MOST proposed 12 years. “By rejecting our amendment, we will be sent a bad message to many who have illegally acquired property and will now in effect be pardoned”, said MP Maro Kristić (MOST).

Parliament also changed laws on corporate taxes and on salary contributions. In the system of contributions, the major change is the introduction of the obligation to pay contributions for pension and health insurance on so-called other income (fees received by artists, journalists, freelancers and similar professions).

One of the laws changed is the one regulating the organizational structure of the Tax Authority. Employees of the Independent Department for Tax Fraud Detection, which used to be part of the Finance Ministry itself, will now be transferred to the Tax Authority. This has drawn criticism from both the opposition parties and MOST, who claim that such change will reduce their independence and impartiality in detecting tax fraud.

After the vote, Minister Marić told reporters that the tax reform was aimed at simplification of the entire tax system. “I think we have succeeded. This is a comprehensive reform, and the vote was preceded by 43 hours of parliamentary debate and many more hours of dedicated work of the expert working group”, said Marić. He added that the tax reform was just one of the elements of an integrated government programme focused on growth, new jobs and demographic renewal.

One of the main objections to the reform came from the tourism sector, since the value-added tax for restaurant and catering services will increase from 13 to 25 percent. Trade unions also protested the fact that, while net salaries of those with higher income would grow substantially, people with lower wages will not get any tax relief.


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