The Croatian Employers' Association (HUP) presented its own proposal for tax reform to Finance Minister Zdravko Maric, calling for the lower VAT tax bracket to be applied to additional products and services, for the reduction of income tax rates, and the cutting of profit tax rate to 12 percent for all businesses.

HUP said they believe that the upcoming third round of tax reforms prepared to be rolled out by the end of the year should primarily focus on further easing of the the tax burden to the economy and businesses, which would then pave the way for higher net wages which could in tern help retain the dwindling labour force.

“We believe that this set of legislation proposals for tax reform is a step in the right direction. Still, given the facts indicating an alarming demographic situation in Croatia, and the need for faster (GDP) growth, we emphasise that stronger steps should be taken in that direction,” HUP said.

The current tax reform plan proposes reducing the VAT rate from 25 percent to 13 percent for fresh meat, fresh fish, fruit, vegetables, and diapers.

Employers are proposing that the lower 13 percent VAT tax rate should be applied to more products, including non-prescription drugs, fresh and frozen meat products, dairy, bee and heating products, newspapers and magazines, public transport, housing renovations, marina services, hotel accommodation, and restaurants.

They also want the profit tax rate reduced to 12 percent for all businesses. Currently, the general profit tax rate is 18 percent, while small businesses, or those with an annual income of up to 3 million kuna (€404,300) are subject to 12 percent tax.

They recommend reducing the existing income tax rate brackets from 24 and 36 percent to 14 and 30 percent respectively, saying this would help increase net wages and provide additional impetus to retain labour in Croatia.

The current income tax rate of 24 percent is levied to personal monthly incomes of up to 17,500 kuna (€2,360), while incomes above that are subject to 36 percent tax. The government’s bill proposes that the threshold for the 36 percent tax to be raised to monthly incomes of 30,000 kuna (€4,040) and over.

(€1 = 7.42 kuna)

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