As part of the latest round of tax reform in Croatia, the local surtax will be abolished, the nontaxable disposable income will be raised to €560, and the government will cover part of the costs of pension contributions for low-income citizens.

Presenting the latest round of tax changes, Prime Minister Andrej Plenkovic said on Wednesday that the reform is aimed at making wages higher, and for that purpose nine laws will be amended in the latest round of the reform.

Having in mind the macroeconomic indicators, 2023 is the right time for easing the tax burden, and the changes will go into effect in January 2024, he said.

As for some suggestions that the tax burden should be made easier by lowering Value Added Tax, he said that a Tax Administration study had shown that prices had not go down in proportion to the reduction of the VAT rates.

The alternative is to reduce the tax burden on the income, and the new round of the reform will apply to the citizens who have not been encompassed by the previous rounds.

As for some complaints from units of local government that do not want to do away with the local surtax, Plenković responded that since 2017, when it was €1.4 billion, local government units’ revenue from income tax increased to €2.4 billion.

Autonomous defining of tax on income

Towns and cities will no longer be able to impose local surtaxes that now range from zero to 18% rate. However, they will be able to make autonomous decisions on income tax rates.

For instance, the City of Zagreb has a local surtax of 18% and annually collects €950 million from it. Now, it will be able to define its tax rates on income and the rates can range between 15% to 24%.

Municipalities are currently entitled to local surtax on income from 0% to 10%. After its abolishment, they will be able to chose an income tax rate between 15% to 22%.

Towns that are currently able to impose surtaxes up to 12% will be entitled to imposing a tax rate on income ranging from 15% to 22.5%. Cities with more than 30,000 inhabitants that can now have surtaxes up to 15% will choose an income tax rate between 15% and 23%.

The units of local government are supposed to make their choice public in the last quarter of 2023.

Raising nontaxable disposable income

The disposable income not subject to taxation will be raised from the current €530.90 to €560. The threshold for applying a higher income tax rate is raised from €47,780 to 50,400.

Finance Minister Marko Primorac also presented some steps concerning pension contributions.

Recipients with a gross monthly pay up to €700 can count on a tax relief of €300.

The recipients of a gross monthly wage between €700.01 and €1,300 will be entitled to a gradual tax relief.

This will mean a rise in the net pay, particularly for those with lower wages, according to the minister.