Finance Minister Zdravko Maric said on Tuesday that the result of tax changes coming into force next year would be about HRK 2 billion lower taxes, noting that the effect of lower tax revenues on local government budgets had been fully offset.

Maric was speaking at a conference on tax policy in Koprivnica, organised by the Vecernji List newspaper and the Podravka food company. He presented planned tax amendments that would take effect on January 1, including the income tax rates being reduced from 24% to 20% and from 36% to 30% and the profit tax rate being reduced from 12% to 10% for all businesses with an annual turnover of up to HRK 7.5 million.

Maric said that the brunt of this tax reduction would be solely borne by central government. Given that income tax partly constitutes a revenue for local government units, the tax distribution ratios will be changed, with towns’ share increasing from 60% to 74% and counties’ share from 17% to 20%.

“The effect of reduced tax revenues on local government budgets has been fully offset,” Maric said, adding that this was part of fiscal decentralisation.

He said that by reducing direct taxes the government wanted to provide an additional impulse to economic activity, investment, employment and wage growth.

Economy and Sustainable Development Minister Tomislav Coric said that the tax system and exchange rate policy should never have been the main instruments of increasing the competitiveness of the national economy. He said that as a result of the tax amendments Croatia today was at the EU average in terms of profit tax and income tax.

Coric said that Croatia should increase the technological level of its production in order to be more competitive in the EU, and added that Croatia should direct EU funding at promoting the green economy, digitalisation, and increasing production and its competitiveness.

The CEO of Fortenova Group, Fabris Perusko, said that the Croatian economy was competitive with neighbouring economies when it came to profit tax, but that it was not competitive when it came to income tax. He welcomed the tax amendments in that regard, notably the reduction of income tax on highly-paid jobs. He said that lower taxes on those jobs would help Croatia become more attractive to regional centres of multinational companies, which would also contribute to GDP growth.