Maric: tax changes should boost employment and wages

Legislative amendments that are part of the fifth round of tax reform should lead to higher employment and wages, Finance Minister Zdravko Maric said in parliament on Wednesday where the bill, which is expected to enter into force on 1 January 2021, received a second reading.

"The amendments are expected to encourage employment and wage growth," Maric said after the parliamentary debate.

The proposed amendments are expected to result in a tax revenue loss of HRK 2 billion a year but the minister expects them to have a positive effect for citizens and the economy.

He added that not all taxpayers can be encompassed by the latest amendments but that about 900,000 can expect some financial benefit, depending on the amount of their income. He recalled that of a total of 2.8 million employed people and pensioners, 1.9 million did not pay income tax.

The minister underlined that the government would not refrain from the newest  tax changes despite the situation with the COVID-19 epidemic and that this was an essential part of its last election platform.

The tax changes so far have left more than HRK 8 billion to citizens and the business sector while the range of non-taxable income has been expanded, and employers can pay workers more than HRK 1,000 extra a month without having to pay any taxes.

The latest round of tax reform includes changes to the financing of local government units increasing those units' share in income tax revenue distribution while the Fiscal Equalisation Fund will be taken over by the state budget. The fifth tax reform round also includes changes to income tax, profit tax, VAT, and fiscalisation in cash transactions.

Income tax brackets are being decreased from 24% to 20% and from 36% to 30%, which means that local government will receive about HRK 2 billion less in revenue.

However, the government will compensate local government units for that amount by increasing the share of municipalities, towns and counties in income tax distribution - from 60% to 74% for municipalities and towns and from 17% to 20% for counties, while the share for decentralised functions will remain at 6%.

In addition to these proposals, the amendments are geared towards reducing the 12% tax rate for annual income and one-off taxation for renters to 10%.

The changes also decrease the standard tax rate for turnover of up to HRK 7.5 million from 12% to 10%.

The withholding tax rate for dividends and profit shares would be reduced from 12% to 10% and the withholding tax for remuneration to foreign artists, entertainers and athletes would be reduced from 15 to 10%.

Text: Hina

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