Prime Minister Andrej Plenkovic said at the government session on Thursday that tax reform was of the the most important reforms to be implemented during his premiership, underscoring his expectations that after its implementation, Croatia would have a stable, sustainable and predictable tax system, as one of the important factors of the overall legal security.
"The present tax system in Croatia has certain negative characteristics which led to it being non-competitive and often complicated compared to other countries in the region. High tax levies, a large number of exemptions and frequent changes are the reason why the tax reform is one of the most important reforms to be implemented in this government's term," Plenkovic said.
There are many links in this chain which need to create a secure and stable business climate, the prime minister said, underscoring that taxes were most definitely one of the most important links, but not the only one.
He said that frequent amendments to tax laws had createdan atmosphere of insecurity and lack of trust for entrepreneurs and investments, as indicated by numerous international reports.
In planning the tax reform, the government had to take into account the sustainability of public finances, the financing of local self-government units, but also the realisation of a significant macroeconomic objective -- to have the general government deficit amount to 2% of GDP in 2017, Plenkovic said.
Presenting the tax reform to members of Plenkovic's cabinet, Finance Minister Zdravko Maric said that the general income tax rate would be reduced from 20% to 18%, while income tax for farmers and small business owners with income amounting to less than HRK 3 million per year would amount to 12%.
He also announced the cancellation of tax reliefs for re-invested profit, as less than one percent of businesses use this benefit.
The income tax rate of 25% would be reduced to 24% and that of 40% to 36%, while the threshold for personal deductions would now amount to HRK 3,800. Incomes amounting to up to HRK 17,500 would be submitted to a 24% rate while a 40% rate would be applied on incomes amounting to more than HRK 17,500.
Maric briefed the cabinet members of the novelties regarding income tax reliefs, stressing that that revoking or reducing reliefs for children has never been discussed.
The finance minister briefed government members also about novelties in the real estate taxation system, excise taxes and a series of other laws.
Also, PM Plenković said that it was vital to transform the State Property Management Office into a ministry as an important pillar of the government's plan to stabilise public finance and reduce public debt.
"Croatia has many properties that are poorly utilised or neglected, and such ineffective or insufficiently used of property is one of the major obstacles to economic growth," Plenkovic said in his address at the first meeting of his cabinet.
The prime minister said that one of the tasks of the new ministry would be to remove these problems so as to encourage growth. He noted that ensuring the more effective use of state property would not rule out privatisation.
"I want to be absolutely clear: there will be no privatisation of strategic infrastructure and resources. However, privatisation, or more specifically, using the private sector as a partner to achieve faster growth and greater employment in companies operating on competitive markets, is welcome and necessary. Of course, decision-making processes will be marked by the highest degree of transparency," Plenkovic said.
The government appointed its representatives to the Economic and Social Council. They are: Deputy Prime Minister and Minister of Economy and Small and Medium Enterprises Martina Dalic, Deputy Prime Minister and Minister of Public Administration Ivan Kovacic, Minister of Demography, Family, Youth and Social Policy Nada Murganic, Finance Minister Zdravko Maric, Minister of Labour and Pension System Tomislav Coric, and Minister of Science and Education Pavo Barisic.
The government is committed to dealing with economic and social issues in close cooperation with the social partners - employers and trade unions, the PM said. He added that he was confident that social dialogue and consensus were effective ways of making decisions, dealing with economic and social issues, ensuring good governance, maintaining social peace and stability, and promoting prosperity.
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