ZAGREB, October 17, 2019 - Finance Minister Zdravko Marić said on Wednesday that the planned pay rise for state administration and public sector employees would cost between 1.1 billion and 1.2 billion kuna annually.

Marić said that the planned increases were expected to take effect at the beginning, in the middle and in the second half of next year, adding that during the term of this government the base pay increase for state administration and public sector employees would be around 18.3 percent.

In an annual report on his government's work submitted to Parliament on Wednesday, Plenković said that the government would offer a 6.12% wage increase to all state administration and public sector employees in three 2% rounds, which was why the planned reduction of the standard 25% VAT rate by one percentage point, set for January 1, would be postponed.

Marić said that the government would also tackle the issue of the job complexity index and bonuses defined by different contracts, adding that a detailed analysis of civil service jobs would be carried out.

Speaking of the plan to increase non-taxable income from 3,800 to 4,000 kuna, the minister said this would increase the number of taxpayers not subject to income tax by 75-80,000. He noted that 1.7 million citizens were currently not subject to income tax.

Marić said that about one million other employees would also be subject to higher non-taxable income and that the financial effect would depend on their wages.

The total effect of this measure is 500 million kuna, which should end up in citizens' pockets, while local government will be left without this money. Marić announced compensation measures for local government units. The delay in reducing the VAT rate by one percentage point will leave between 1.7 billion and 1.8 billion kuna in government coffers, the minister said.

Marić said that despite the planned measures there would be no departure from the set economic and fiscal policy guidelines, adding that the 2020 budget would be balanced in that regard.

More budget news can be found in the Business news.

ZAGREB, September 18, 2019 - The Croatian Finance Ministry on Tuesday put to month-long public consultation nine bills from a fourth round of tax reform, which, among other things, envisage tax breaks for young people, a lower, 13% VAT rate for the hospitality sector, etc.

The latest round of tax changes was outlined in late July by Prime Minister Andrej Plenković and Finance Minister Zdravko Marić, who then said that the fourth tax reform round was expected to reduce the tax burden by 3.75 billion kuna.

Amendments to the Income Tax Act propose the income tax on people under 25 years should be scrapped and on those aged 26-30 cut by half.

Under these proposals, these tax deductions would apply to an annual income of up to 360,000 kuna.

This would result in an increase in the net salaries of young people and contribute to putting a stop to the emigration of young and highly educated people to work abroad.

The Finance Ministry estimates that these tax breaks will result in a drop in the revenue of local government units of 800 million kuna.

These changes would also enable employers to make non-taxable payments for their employees' supplementary and additional health insurance up to a certain amount and based on credible documentation.

The standard VAT rate of 25% will be reduced to 24% as of next year, and the latest amendments to the VAT Act envisage also the entry into force, as of 2020, of a lower, 13% VAT rate on food preparation and serving in the hospitality industry.

The lowering of the VAT rate in the hospitality industry is expected to reduce the budget revenue by around 900 million kuna annually.

As for profit tax, the government has proposed that businesses with an annual revenue of less than 7.5 million kuna be subject to a 12% rate, up from the present 3 million kuna.

The profit tax rate of 18% will stay in force for those who earn more than 7.5 million kuna annually.

The amendments also raise the threshold from which physical persons who are small business owners and are subject to income tax have to pay profit tax and keep business records according to accounting rules, from HRK 3 million to 7.5 million in receipts annually.

Amendments to special taxes on coffee and non-alcoholic drinks introduce taxes on non-alcoholic drinks, depending on sugar content, as well as additional taxation of energy drinks.

Instead of the current definition of fruit syrups, the amendments introduce a definition of added sugars (monosaccharides and disaccharides) and preparations that contain sugar, except for juices that do not contain added sugar or sweeteners.

Under the amendments, the special tax on coffee and non-alcoholic drinks would be paid depending on product weight or volume, sugar content, and the content of caffeine, methylxanthine and taurine.

More news about taxes in Croatia can be found in the Business section.

ZAGREB, September 4, 2019 - The opposition MOST party organised a round table discussion in Zagreb on Tuesday to present its proposals for tax cuts in light of planned legislative changes.

It was the first in a series of round tables that would be held and it focused on the tax system and demographic policy. Suggestions made by economists and tax experts should contribute to demographic policy, give an impulse to businesses and boost investment in education, research and development.

"Our view is that halfway demographic measures are not effective. Conventional solutions are not producing results. Measures for demographic revival should be concrete and financially tangible and should be passed immediately," MOST's leader Bozo Petrov said.

Mislav Kraljević of the party's Economic, Financial and Business Council said that income tax reliefs on dependent children should be replaced by fixed-amount allowances that increase progressively with the number of dependent children, regardless of the amount of the parents' monthly income.

"The purpose of this measure is to help low-income citizens who are currently not subject to taxation and who do not benefit from any tax rate reductions. They constitute a majority of employed people in Croatia, and this proposal is the only possible measure that can have a positive effect on their net wages. This measure has a clear positive demographic effect and would lead to a complete redesign of the child allowance system," Kraljević said.

The executive director of the American Chamber of Commerce in Croatia, Andrea Doko Jelušić, said that the AmCham had drawn up recommendations for changes to the Croatian tax system. She said it was necessary to increase the non-taxable income from 3,800 kuna (€514) to 4,800 kuna (€650) and to reduce the income tax rates. She said that the first income tax rate should be cut from 24% to 12% and that the second rate, of 36%, should be reduced considerably.

"Croatia must take measures to become more competitive in relation to its peers in the neighbourhood," Doko Jelušić said.

Davor Huić of the Lipa taxpayers' association said that the tax system should be simplified and brought closer to a flat-tax model. He added that the government must find a way to cut public spending, which he said was among the highest in Europe. "It is absurd that the Croatian public sector is constantly growing while the number of people for whom this sector is working is continuously falling," Huić said.

More news about taxes can be found in the Business section.

ZAGREB, September 2, 2019 - Finance Minister Zdravko Marić said on Sunday the changes to income tax rules entering into force would give employers an additional possibility to raise their employees' salaries.

"All the changes are in line with what we have been announcing," he told reporters.

He said the pay rises would eventually mean higher living standards and that this was in line with the changes made in the previous three tax reform rounds, notably the last one from the end of 2018, when the non-taxable amount for bonuses was raised from 2,500 to 7,500 kuna.

The minister said this was not coercion but just an option for employers, adding that this was a contribution by public finances and the fiscal policy to raising salaries in the business sector.

The latest non-taxable earnings refer to meals, accommodation, day-care, holidays, and per diems. Marić said that as of January 1, health insurance contributions would also be non-taxable.

Asked if he was confident that employers would utilise these tax breaks, the minister said he believed that a large number had a very positive view of this option as they could raise their employees' salaries without being subject to any additional tax burden.

He said payments for non-taxable bonuses, which went into force last December 1, reached 1.25 billion kuna that month alone, covering 471,000 employees. He added that this option was in force this year as well and that 850 million kuna had been paid until now.

Asked if the state would utilise these options, Marić said the current focus regarding public sector workers was on the base pay. He added that for now the government was paying them 2,500 kuna in non-taxable holiday and Christmas bonuses.

Asked about a strike announced by medical staff, he said negotiations were under way with unions "and we'll see where and in what way this will all go."

The government believes that employees deserve higher incomes, he said. "Just as it was the case in the private sector, we can't ignore the fact that the options are limited," he said, adding that one must consider the state budget and public finances and "balance" accordingly.

More news about taxes can be found in the Business section.

ZAGREB, August 12, 2019 - The Lipa taxpayers' association has recently launched an online petition against the introduction of taxes on sugar in non-alcoholic beverages and against plans to increase taxes on cigarettes and alcohol.

Lipa, which describes itself as "the voice of taxpayers in public discourse", has stated that the taxation of drinks with added sugar and higher tobacco and alcohol taxes "will improve nothing in your lives".

It will only increase the amount of money made available to the "too wasteful state", Lipa says in a press release.

The NGO is against a new tax being imposed on sugary drinks "under the pretext of protection of young people against obesity" and insists that cheap fast food, the only type of food available to impoverished citizens, is the cause of obesity.

The association calls for reducing the tax burden and enhancing living standards to improve citizens' eating habits.

It also calls on the government to implement the 2019 National Reform Programme, which includes the merger of hospitals, further development of integrated public procurement, digitisation and efficient human resources management in the health system, as a way of improving public health.

More news about taxes can be found in the Business section.

ZAGREB, August 10, 2019 - Social Democratic Party (SDP) leader Davor Bernardić on Saturday called on the government to lower the VAT rate on the entire restaurant sector, criticising it for still lacking a tourism development strategy.

Speaking to reporters in the coastal city of Split, Bernardić said that this year's results in the tourism sector were less good than last year.

"Unfortunately, indicators for this year are poorer than last year... and the real question is what the government is doing to make up for the lack of revenue that will most certainly affect the state budget. There is evidently no strategy, and VAT, notably in the restaurant sector, is still the highest in Europe, 25%," Bernardić said, noting that Italy, Spain, Portugal and France had a VAT rate in the restaurant sector ranging between 10 and 13 percent and that rival destinations in the Mediterranean were growing stronger every day.

"The last tax reform round has introduced discrimination between those in the restaurant sector who serve food and those who serve drinks. We will continue to insist that VAT on all restaurant services be lowered to 13%," Bernardić said.

The government recently decided to reduce VAT on food in the restaurant sector from the current 25% to 13%.

Asked to comment on President Kolinda Grabar-Kitarović's response to a request by the MOST opposition party that she call an extraordinary session of the parliament to discuss a vote of no confidence in Health Minister Milan Kujundžić, Bernardić said that the president had shifted responsibility onto the Constitutional Court.

If the President of the Republic believes that the Constitution has been violated, which is what the opposition believes is the case, she has the right to protect the Constitution and the Republic and call a special parliament session. She does not need the opinion of the Constitutional Court for that, Bernardić said.

Reporters also asked him for a comment on the HDZ party's opposition to the cultivation of hemp and liberalisation of the hemp market, to which he said that the HDZ itself had liberalised the use of hemp two months ago.

Now is the time to make an additional step, he said, adding that aside from its use for medicinal purposes, the SDP also wanted hemp to be used in 25,000 products in the construction, tourism and pharmaceutical sectors, as it would provide an opportunity for economic growth and job creation.

An SDP official from Split, Goran Kotur, said that the city's industrial sector had been destroyed and that tourism was the only remaining industrial branch, calling for making order in the tourism sector and developing it in line with principles of sustainability, which, he said, the city's administration, led by HDZ mayor Andro Krstulović Opara, was not doing.

More SDP news can be found in the Politics section.

ZAGREB, Aug 3, 2019 - In an interview with Croatian Radio on Friday, President Kolinda Grabar-Kitarović welcomed the tax reform, but said she was disappointed with it to some extent.

She said that she had expected greater tax reliefs for all categories whose income could have been increased "with other measures."

The president said that priorities could have been ordered a little better in the fourth round of the tax reform. "I advocate decreasing the tax burden on entrepreneurs and increasing workers' incomes," she said.

Grabar-Kitarović said she was unhappy that the recent government reshuffle did not include the Health Ministry. "The labour drain is due to working conditions and not wages. The situation in the health sector is perhaps not disastrous but it is truly in a very poor state and almost nothing has been done in the past three years. I am sorry that the Health Ministry wasn't included in the last government reshuffle," she said.

Asked whether she would uphold an opposition call for an extraordinary session of parliament to debate a vote of no confidence in Health Minister Milan Kujundžić, the president said she would not interfere in that.

She explained that her primary role is to ensure the stability of institutions. "This is a matter of the health sector functioning and I think that we need a good manager here who can, but need not be a physician and that objections by medical staff have to be taken seriously," Grabar-Kitarović underscored.

Asked when she would officially announce her bid for a second term as president, Grabar-Kitarović said that that would certainly be after the celebrations for Victory Day and the anniversary of Operation Storm.

She considers that the fall in the Croatian Democratic Union's (HDZ) approval ratings over the past six months has not affected her rating because she is a non-partisan who comes from that party.

The president said that she would like to go to a concert by Marko Perković Thompson in Split, and welcomed the fact that he called on the public to only wear insignia of the victorious Croatian army because the Homeland War is the foundation of modern Croatia.

"I think I would like to stop by his concert. I have never hidden that fact and I have already attended some of his concerts," she said.

Commenting on bilingual signs in Vukovar, Grabar-Kitarović said that they can be put up when the war wounds, which are still visible at every step, have healed.

"I support Vukovar Mayor Ivan Penava because we are all human. On the one hand his job is extremely difficult because he is trying to ensure justice for all, and we haven't faced up to the crimes that occurred there from Borovo Selo onwards," said the president.

She added that the judiciary was still waiting, yet she would like to see it embark on resolving war crimes.

More news about presidential elections can be found in the Politics section.

ZAGREB, July 31, 2019 - Finance Minister Zdravko Marić said on Wednesday a tax on sugar in soft drinks under new rates proposed by the government would not necessarily mean higher revenues for the Health Ministry.

This tax has no specific purpose, so its revenue is general and serves to pay the general needs from the state budget, he told reporters when asked if the Health Ministry could count on higher revenues due to higher sugar rates.

Marić said the government was not imposing a new tax but correcting an existing one. The sugar ratio in soft drinks, under the government's proposal, will not be taxed by 40 kuna per 100 litres but depending on the percentage of sugar in those drinks, he added.

As for possibly higher excises on tobacco and alcohol, Marić said excises would go up at the end of the year and that he assumed producers would calculate them into prices. "We are not proposing a dramatic jump that would disrupt market relations."

Health Minister Milan Kujundžić said higher prices for cigarettes and soft drinks were absolutely justified, after criticism that such measures in some other countries have yielded no results.

"Demographically, ethically and medically speaking, it's absolutely justified to raise prices, significantly, so that our children don't enter the world of vice," he told reporters.

Financially speaking, Kujundžić said it should be analysed and that he therefore understood Marić's caution.

Cigarettes take 15,000 lives a year and from an ethical and human aspect, nothing is more important than saving those lives, while demographically speaking, 15,000 more people annually would mean a lot, he added.

Asked what that money would be spent on, Kujundžić said it was not important and that saving people's health and lives was.

More tax news can be found in the Business section.

ZAGREB, July 29, 2019 - The leaders of the SSSH, NHS and MHS union federations said on Monday the fourth tax reform round benefited employers while leaving workers crumbs.

Speaking at a press conference, SSSH president Mladen Novosel said "employers will be least dissatisfied with this fourth relief round." He called as populist the measure under which workers under 25 would be exempt from paying income tax and those aged 25-30 would pay 50% income tax, saying it would not stop young people from emigrating, while discriminating against other workers.

NHS president Krešimir Sever said the measure was being adopted without concrete calculations and that it would cut the revenues of local communities which, he added, might cut kindergarten subsidies, increase utility prices and introduce local taxes.

He said the government was currying favour with employers at any cost, at the expense of pension and health insurance as well as workers with the lowest or average wages.

MHS economist Matija Kroflin said the fourth tax reform round would not stimulate GDP growth or result in higher salaries or lower prices.

"Nearly 3 billion kuna of the estimated 3.7 billion kuna (tax reduction) refers to the reduction of the general VAT rate from 25% to 24% and to the VAT reduction for the hospitality industry," he said, adding that said three billion would end up in the pockets or business and restaurant owners.

The unionists called on the government to raise the non-taxable income from 3,800 to 4,370 kuna, which is 60% of the median pay, and the minimum wage to 4,370 gross kuna, and to reintroduce a 12% income rate on salaries of up to 17,500 kuna.

More news about taxes can be found in the Business section.

ZAGREB, July 27, 2019 - The Social Democratic Party's (SDP) candidate for President of the Republic, Zoran Milanović, said on Friday that the latest government measures to reduce income tax for people under the age of 30 and lower the VAT rate on tourism services were not a tax reform.

"Something that is done in four steps cannot be a reform. This is just sounding out the situation and it need not end badly. I can understand some of the things that have been done and I welcome them as a continuation of what was begun in January and February 2015, Milanović said, referring to the time when his government was in office.

"This is not a reform, nor do I think that Croatia needs a tax reform. What it needs is constant monitoring and correcting. These are trial-and-error changes. I have to say that there haven't been many errors so far, but this is a continuation of what was begun in 2015. I can't see why it was necessary to abolish and then reinstate a lower rate for tourism. Such moves only cause unnecessary uncertainty. If possible, taxes should be reduced. This government has entered into a good inertia for which prerequisites were created before," he told the press during a visit to the eastern city of Osijek.

Asked what his relationship with Prime Minister Andrej Plenković would be like if he became President, Milanović said that he would not be destructive nor would he spite the government. He also said that he would not seek the prime minister's resignation. "A President of the Republic should not do that. We saw it five years ago and that's not good. I won't be banging my fist on the table. You can't trust those who say they will, just as you can't trust them when they say that Croatia will be as rich as Switzerland. But Croatia can be as normal as Switzerland, I can promise that."

He declined to comment on other presidential candidates "for tactical reasons," adding that he hoped he would win the race.

Commenting on the death of the first Croatian soldier in Afghanistan this week, Milanović said that the Croatian contingent should be scaled down and that this idea should be discussed. He recalled that when he became prime minister the Croatian contingent in Afghanistan was 350-strong.

"We reduced their number to 50 and now there are 90 of them. I think this number should be reduced because it's not just that it's not our war but it's not NATO's war either because they also do police work there. It's an unnecessary risk," Milanović said.

He recalled that the Croatian army had been present in Afghanistan since 2003 when he was assistant foreign minister, and that he had discussed their deployment with the then prime minister Ivica Račan and foreign minister Tonino Picula.

He said that at the time Croatia was an aspirant for NATO membership and that by deploying its troops to Afghanistan it wanted to show its readiness to assume certain obligations in the alliance.

"In a way I feel responsible for the deployment of Croatian troops there. I will go there, just as (former president) Ivo Josipović and I withdrew Croatian troops from the Golan Heights when they found themselves in danger. A withdrawal of the Croatian troops from Afghanistan is a topic that should be discussed," Milanović concluded.

More news about presidential elections can be found in the Politics section.