The Finance Ministry on Thursday put to public consultation several draft bills which envisage expanding the application of the 13 percent VAT rate as of 2019, reducing the general VAT rate from 25 to 24 percent as of 2020, and reducing real estate trade tax from 4 to 3 percent.

Three VAT rates are currently applied in Croatia, the general 25 percent rate, and two reduced ones, of 5 percent and 13 percent. In order to relieve the tax burden on the business sector, the draft bill of amendments to the VAT law envisages reducing the general rate to 24 percent as of 1 January 2020.

Prime Minister Andrej Plenkovic said earlier this month that the new package of laws would enable relief totalling 2.7 billion kuna (€363.6 million) as of 2019. This, he said, is expected to increase personal consumption, employment, investment, budgetary revenues, and economic growth.

As of next year, the 13 percent VAT rate would also apply to nappies, fresh meat, fish, fruit and vegetables. Finance Minister Zdravko Maric has said recently that, if the prices of those products are corrected, an average family would save around 870 kuna (€117) annually.

Since the 13 percent VAT would apply to a larger number of products, it is expected that the state budget will receive 1.4 billion kuna (€188.5 million) less from VAT annually.

Amendments to the real estate trade tax law, reducing it from 4 to 3 percent as of next year, are expected to result in relief totalling 100 million kuna (€13.4 million). Last year, this tax was reduced from 5 to 4 percent.

The draft bill of amendments to the law on contributions on salaries envisages revoking the 1.7 percent mandatory insurance contribution in case of unemployment and the 0.5 percent contribution for safety at work, as well as increasing the health insurance contribution from 15 to 16.5 percent with the aim to alleviate the health sector’s financial difficulties.

Revoking those two contributions will reduce contributions on salaries from 37.2 to 36.5 percent, reducing employers’ salary outlays by 0.7 percent, or 900 million kuna (€121.2 million) according to projections, which would create room for raising salaries, the Finance Ministry says.

A bill of amendments to the law on fiscalisation is also in public consultation. On average, 6.4 million receipts pass through the system daily. Their number in 2017 was 0.03 percent higher than in 2016 and their total amount was 7 percent higher. The ministry says the amendments are aimed at creating a fairer and more competitive tax system and increasing fiscal discipline.

With the draft bill of amendments to the profit tax law, Croatia is complying with its obligation to align its legislation with the European Union’s Anti-Tax Avoidance Directive as of next year.

Public consultation on all bills will last until September 6.

(€1 = 7.4 kuna)