The government on Thursday forwarded amendments to nine tax laws to parliament, including the VAT Act which should ease the tax burden as of 2019, and the estimated effects of expanding the lower VAT rate of 13 percent is the tax relief of some 1.4 billion kuna (€188.5 million).

This is the third round of tax reforms which began in 2016, Finance Minister Zdravko Maric said on Thursday.

“Everything presented today is in line with what we have announced, all the changes over the last three years were consistent with the previous ones, with the aim to make our tax system more stable, simpler, more predictable and competitive,” he said.

The first two rounds of tax reform resulted in tax relief of some 3.6 billion kuna (€484.5 million), and this, third round, is estimated to bring the tax relief of 2.7 billion kuna (€363.4 million).

Amendments to the VAT Act foresee expanding the application of a lower 13 percent VAT rate as of 2019 on children’s nappies, livestock, fresh meat, fish, fruits and vegetables, and eggs which now have the standard VAT rate of 25 percent.

The standard VAT rate is supposed to be lowered to 24 percent as of 2020, which may decrease state budget revenue by 1.6 billion kuna (€215.4 million).

Income Tax Amendments

Amendments to the Income Tax Act propose that the tax bracket be reduced from 36 percent to 24 percent for monthly wages up to 30,000 kuna (€4,000). Under to the current law, an advance income tax rate of 24 percent is paid for monthly wages up to 17,500 kuna (€2,355).

The government estimates that this would mean a significant increase in wages particularly of workers in the high technology sector and qualified professionals such as doctors, IT experts and pharmacists which should curb the brain drain of highly-qualified workers.

Changes to contribution payment means 900 million kuna (€121.1 million) in savings for employers

The proposed amendments to the Law on Contributions recommend that the contribution for employment of 1.7 percent be abolished, as well as the contribution for work safety of 0.5 percent while contributions for health insurance would be increased from 15 percent to 16.5 percent.

Revoking the contributions for employment would lead to a reduction of 2.2 billion kuna (€296.1 million) in the state budget’s revenue. Having in mind the abolishment of the contribution for work safety, an increase in health insurance contributions will offset this measure and eventually result in additional 1.3 billion kuna (€174.9 million) to the budget of the Croatian Fund for Health Insurance (HZZO).

(€1= 7.4 kuna)

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