Prime Minister Andrej Plenkovic and Finance Minister Zdravko Maric on Friday unveiled a fourth round of the tax reform undertaken during the term of the present government, saying that it would reduce the tax burden by HRK 3.75 billion.

The government proposes that income tax on people under 25 years be reduced by 100% and on those aged 26-30 by 50%. The proposal will be put to public consultation.

The government stood by its decision to reduce the general VAT rate from 25% to 24% and proposed a 13% VAT rate on food preparation and serving in the hospitality industry. As for profit tax, it proposed that businesses with an annual revenue of less than HRK 7.5 million be subject to a 12% rate, up from the present HRK 3 million. A tax on soft drinks, depending on sugar content, is also proposed.

The government proposed non-taxable receipts for all workers and small business owners, including rewards for work performance of up to HRK 5,000 annually and allowances for newborn children of up to HRK 10,000 annually.

PM: Continuation of policy to ease burden on enterprise sector and households

Prime Minister Plenkovic said that the measures represented a continuation of the government policy to ease the tax burden on households and the enterprise sector while at the same time stabilising public finance.

He said that the result of all four rounds of the tax reform would be a reduction of the tax burden of HRK 10 billion, or HRK 12 billion when the reduction of the administrative burden is included.

“This is a huge figure, and it was achieved with a budget surplus,” the prime minister underscored. He added that the government policy was one of responsible management and intelligent allocation of taxpayers’ money, and that maintaining political stability was crucial.

Speaking of the proposed reduction of VAT on hospitality services, he said that its purpose was to maintain the level of revenue in this sector and increase the quality of services. As for the taxation of soft drinks, he said that this measure was prompted by the problem of obesity among young people and children.

In conclusion, Plenkovic said that the tax policy was not all and that extra efforts should be made to encourage investment and the use of EU funding.

FinMin expects positive response from employers

Finance Minister Maric said that the government had done its bit by proposing tax relief on wages for young people and now it was expecting a positive response from employers. He said that the proposed measures could cover about 250,000 young people. He noted that “tax system does not define wages” but that they are defined by contracts between the employer and the worker.

Asked if he expected restaurant owners to increase wages for their workers on account of the VAT cut, Maric said that that was up to restaurant owners, adding that the government had already done enough for them through its measures for small and medium-sized businesses.

Maric said that nine laws would be amended as part of the latest round of the tax reform. He said that the government expected the necessary amendments to be made in the autumn so that they could take effect on January 1, 2020.

(EUR 1 = HRK 7.38)