Croatia’s tax system has to be made compatible, simple and stable and this is the basis of the new phase of the reform which will focus on removing some of the burdens on profits, Finance Minister Zdravko Maric told N1.

But the reform will not stop there, he said.

Croatia’s Prime Minister Andrej Plenkovic has previously said the focus will be on decreasing the VAT by one percent.

“Perhaps the VAT is the most obvious part but neither I, not the Prime Minister have been exclusively talking about the VAT. We are bringing the whole package to an end,” Maric said, adding that he will in the next few days present the measures to the Prime Minister, the Government and the coalition partners so the proposal can be presented to the public for a discussion and adopted by January 1, 2019.

The overall perception that Croatia’s taxes are among the highest is wrong, he said. Compared to the EU, the VAT part of the GDP in Croatia is 13 percent and in the rest of the Union it is just 9 percent, he said.

“Taxes on salaries are among the lowest,” in the EU, he said.

He explained that from one Euro of a salary, 65 Cent go to Taxes and social contributions, which is the same as in Slovenia, and added that Croatia is at the lower half of the scale on this matter.

However, employers are complaining that the taxes are too high, particularly the parafiscal ones.

“It is OK for them to say that and we should talk about it. That’s something we are doing for two years already,” Maric said.

When the government reduced the income tax, the income from taxes rose by 17 percent.

“This will be our guideline,” the Minister said.

A proposal to dismantle the 36 percent rate came from the Ministry in 2016 but the government decided back then only to reduce it.

“Right now, a million and a half out of 2.7 million taxpayers are not paying income tax. On the other hand, IT experts appealed in a letter to me to decrease the rate as it is killing them. That’s why we opted for this direction,” he said.

Maric explained that the taxes and contributions on above average salaries are higher than the average in Europe. The VAT can not be reduced more than one percent now as the country would not be able to bear that loss, he said.

“After six years of recession, Croatia is now recording economic growth, something below four percent. I think it is good to have this growth as it is on a much healthier basis than before the recession. But this growth should not satisfy us. That’s why structural reforms of all systems are necessary,” Maric said.