Set of Tax Changes Presented in Croatian Parliament

By 15 November 2018

ZAGREB, November 15, 2018 - A set of tax changes presented in parliament on Thursday by Finance Minister Zdravko Maric sparked a heated debate, with the opposition and the ruling majority criticising one another. The strongest opposition Social Democratic Party (SDP) claimed that the government was increasing salaries for "Prime Minister Plenković' elite."

"These tax changes are inappropriate at this time... While our people are emigrating on a daily basis, the government has decided to raise the net pay for Plenković's elite of some 20,000 people. Those making more than 17,000 kuna a month will now make even more money, while others will get nothing. This is a disaster and we must talk about it," said SDP MP Gordan Maras in response to the finance minister's presentation.

MP Peđa Grbin also joined his party colleague in criticising the government. "Do you think that it is socially more acceptable to help with tax breaks 20,000 people who are already making more than 17,000 kuna net than to support the SDP's proposal to raise the non-taxable portion from 3,800 kuna to 5,000 kuna and help two thirds of Croatian citizens whose salaries range from 3,800 kuna up?" Grbin asked the finance minister.

Minister Marić explained that raising the non-taxable portion would not apply to a vast majority of tax payers. "On the other hand, I have failed to emphasise the fact that income tax revenue is revenue of local and regional self-government units and this would be a great loss for them," Marić said.

Maras then requested a recess. The request was seconded by Ivan Šuker of the ruling Croatian Democratic Union (HDZ).

In his introductory remarks, Minister Marić said that the proposed set of nine bills had been submitted for a second reading and that it represented a third round of tax and administrative relief as part of the tax reform which became effective on 1 January 2017.

The bills in question concern Value Added Tax, property sales, excise tax, profit tax, income tax, contributions, fiscalisation of cash transactions, general tax law, and administrative cooperation in taxation.

"In the first round of tax relief, the tax burden was reduced by a total of 2.3 billion kuna, and in the second round by 1.3 billion kuna. In the present bill we propose a further tax reduction of 3 billion kuna, which will bring the total tax reduction over three years to 6.6 billion kuna," Marić said.

Speaking of the most important changes proposed by the bills, Marić said that the VAT rate of 13% would be extended to include fresh or chilled meat, fish, fruit and vegetables, eggs, live animal deliveries, and children's diapers.

The VAT rate of 5% would apply to all medicines, regardless of whether they are prescription or non-prescription medicines, while the VAT rate of 13% would apply to services and copyright-related rights of writers, composers and performing artists.

Under the income tax bill, a person would qualify as a tax dependent if their annual income does not exceed 15,000 kuna (2,000 euro).

After adoption, the proposed bills are expected to go into force on 1 January 2019. Marić said that additional modifications would be made as part of secondary legislation, including those relating to the taxation of tobacco and tobacco products, a special tax on motor vehicles, and income tax rules.

The income tax rules are under public consultation and need to be adjusted to the existing labour legislation. Marić said that the plan was to increase the annual amount of non-taxable receipts from 2,500 kuna to 7,500 kuna (1,000 euro).

For more on Croatian taxes, click here.