Government to Abolish 40% Income Tax Bracket?

Total Croatia News

Those with higher salaries may pay lower taxes starting from next year.

The reports from government circles that, as part of the tax reform, it could abolish the highest income tax rate of 40 percent have been welcomed by many observers. According to them, the abolition of the 40 percent tax rate would be a necessary step in strengthening the competitiveness of Croatia and in convincing skilled people to stay in the country, reports Jutarnji List on May 5, 2016.

“We support such a move. Croatia has a huge ‘brain drain’ of highly educated people, and they fall into the category of those whose salaries are covered by the 40 percent tax rate. Therefore, this decision would contribute to such people remaining in Croatia”, said Bernard Jakelić, the deputy director of the Croatian Employers’ Association.

“The 40 percent income tax rate has specifically included developers and architects of information systems, business consultants and software companies. Therefore, its abolition would be an incentive for them to stay here. After all, the money would eventually be spent on personal consumption anyway, so the state would not lose anything”, said Hrvoje Balen, president of the Algebra College Managing Board.

Former Finance Minister Boris Lalovac (SDP) agreed that the abolition of the tax bracket would be a step in the right direction. His government made the first step in the reform of the income tax system by amending tax brackets. The second step, he said, was to abolish the 40 percent tax bracket. “Croatia is the only country in the region which has such a high rate of income tax. None of the countries in the region have income tax rates higher than 25 percent, and many countries have a flat tax. Its abolition would simplify the tax system and contribute to the reduction of the shadow economy. After all, the taxation of income at a rate of 25 percent is enough”, said Lalovac.

The government has not yet come out with details of the tax reform. It is known only that this year will be used to define what will happen, while the new tax rates would be effective starting from the next year.

Calculations show that members of the middle class would certainly benefit from this change. For example, an employee who now receives a monthly net salary of 15,000 kuna would receive 924 kuna more, while those with net salaries of 20,000 kuna would receive about 2,600 kuna more than now.


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