Employers’ association voices opposition to the new tax on ‘excessive profits’

NEWS 22.11.2022 20:41
Source: Pixabay/Ilustracija

Head of the national employers association HUP, Irena Weber on Tuesday called on the government to cancel its announced plans to introduce a windfall tax on companies, described as "excess profit tax," calling the plan "deeply unfair."

Weber said this at an event organized by the HUP’s association of small- and medium-sized businesses, which was also attended by Finance Minister, Marko Primorac, who retorted somewhat philosophically that “everyone should be aware of the current challenges” and of “what was expected from them in the current circumstances.”

The new one-off tax unveiled by the government would apply to companies with revenues of more than 300 million kuna (€40 million) in 2022 and which post a profit higher than 20 percent above their four-year average in the period from 2018 to 2021. Any “excess profit” determined that way will be additionally taxed at a 33 percent tax rate.

“Unfortunately, my impression is that a part of Croatians, as well as a large number of entrepreneurs, do not fully understand the circumstances we are operating in and how fiscal policy measures, as well as measures from the government’s spring and autumn package, have affected the Croatian economy,” he said, without clarifying.

He repeated the line already repeated by Prime Minister, Andrej Plenkovic, that the new tax should be seen as a “contribution of solidarity,” which is being introduced “in a very difficult economic situation when the most vulnerable social groups need help,” and that “some of that burden should be shouldered by those with the greatest economic strength.”

Although the new tax is talked about in the local media, with most business leaders vocally against it, the government never offered any calculations as to how much revenues they hoped to harvest from it.

“In drafting the bill on excess profits tax, the government was guided by the EU regulation on an emergency intervention to address high energy prices, which envisages a contribution of solidarity by companies with a surplus profit,” state agency Hina said.

“Under this regulation, it would only refer to companies that generate at least 75 percent of their turnover in activities in the sectors of crude oil, natural gas, coal and refining. However, there are no such companies in Croatia,” he said.

So the government’s plan involves taxing companies of the right size, from any sector, whose profit the government defines as “excessive” via a mathematical formula.

Weber again called on the government to scrap its plan for the introduction of the excess profit tax, stressing that it had “caused disappointment and frustration in the business sector.”

“That particularly refers to companies which have earned higher profits owing to investments and successful business restructuring,” she said.

“There are businesses, for example in the construction sector, whose business cycles last long and profit fluctuates significantly, and for many 2022 was the year when they earned a more significant profit, yet that may not cover their losses in the preceding years,” Weber said, also mentioning shipping companies in that context.

“If it stays in its present form, the excess profit tax bill will mostly affect companies in the manufacturing sector, financial industry and retail, as well as large tourism and ICT companies, and shipping companies,” she said. HUP also does not see any reason to introduce the new tax considering that the state budget is very stable and the balance of payments deficit is under control, Weber said.