Finance Minister Zdravko Maric said on Friday the effect of the tax relief on the economy was evident since the beginning of the tax reform and that since 2017 the relief exceeded 10 billion kuna (€1.3 billion) for households and businesses.

He was speaking at a conference on the tax policy in the post-pandemic period, organized by the Zagreb Faculty of Economics and Business and Deloitte Croatia.

Maric recalled that the fifth round of the tax reform went into force at the start of this year, saying that all policies, including the tax policy, must adequately respond to all changes.

He said the focus during the entire tax reform had been on relieving direct taxes such as income and profit. “All these years, every tax relief had… a positive return effect on the economy.”

In the first round of the tax reform, profit tax was reduced from 20% to 18% and, for small businesses, to 12%, yet the state budget earned 16% more that year from profit tax revenues, Maric said.

Croatia ranks first in the EU in terms of the indirect taxes-to-GDP ratio and is one of the few countries with a two-digit share of VAT and excises in GDP, Maric said, adding that cutting VAT did not necessarily mean that products would cost less.

This year will be more challenging than the last

Speaking to the press, Maric said 2021 would in many ways be more challenging than 2020 given that last year the priority was ensuring liquidity, rather than fiscal criteria, in order to channel the money into job retention.

He said this year the limits were much bigger when it came to job retention aid in the private sector in terms of direct transfers from the state budget, the write-off or deferral of tax liabilities, and the reimbursement of fixed costs.

However, certain funds have been earmarked in the budget and, unlike last year, European funds will be the primary source of aid to the business sector, Maric said.

He said the state “has definitely come through” in helping businesses last year in comparison with other countries and the crisis of a dozen years ago when, he said, unemployment rapidly increased.

Speaking of the deferral of tax payments in order to help businesses, Marić said the amount deferred for 75,000 businesses that were entitled to it totalled HRK 4.2 billion.

Difference in taxes on cigarettes and heated tobacco products will be reduced

Asked about the taxation of tobacco products, he said the taxation of cigarettes was stipulated by European directives.

But there is a score of new products with increasingly big market shares such as cut and heated tobacco, he said, adding that a proposal would be made in the next few days and put to public consultation.

The tax on heated tobacco products is 70% lower than the tax on cigarettes, he said, adding that the difference would be reduced and that there was no European directive on heated tobacco products.

Maric also said that more than HRK 90 million had been paid into the state treasury to help those affected by the recent earthquake. This money will be handled very transparently and what it will be spent on will be precisely defined, he added.