ZAGREB, April 17, 2019 - The Independent Trade Unions of Croatia (NHS) on Wednesday said that this year's Easter hamper will be more expensive despite the reduced VAT rate on certain items.

The NHS has calculated the cost of three Easter hampers - a modest one, worth 703 kuna, which is 36 kuna more than last year, a medium-sized hamper of 1,225 kuna, up 1 kuna from last year, and a rich hamper, valued at 1,824 kuna or 109 kuna more than last year.

The contents of the hampers differ according to the type of meat and fish and whether they include certain food items such as cakes, sweets, nibbles and beverages.

The rich hamper includes more expensive items such as cod, lamb and cooked ham, the medium quality hamper contains cheaper fish and meat such as whiting, pork and rolled ham, while the modest hamper contains cheaper pork cuts and the cheapest fish on the market, such as sardines.

The consumer basket indicates that on average the price of quality products has increased, the price of unprocessed food has remained fairly stable while the price of processed or semi-processed products has fallen slightly. With regard to basic foodstuffs, their prices have remained fairly stable and some have recorded a slight increase, the NHS said.

"As for average prices and the most frequent prices surveyed, we cannot say that they have fallen for products whose VAT was decreased by the latest tax changes," the union federation said in a press release.

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ZAGREB, April 10, 2019 - Social Democratic Party (SDP) leader Davor Bernardić on Wednesday said that his party would forward a bill of amendments to VAT to the parliament proposing the lowering of VAT for tourism and hospitality in order to improve the competitiveness of that sector that the government is constantly exposing to new and increased levies.

Bernardić told a press conference that SDP wanted the VAT rate to be lowered to 13% in hospitality and 10% for accommodation services just as in the countries in Europe where tourism is developed.

He does not expect the government to accept the proposal, and criticised the Andrej Plenković cabinet for having rejected all their proposals which he described as good ones.

However, the party leader promises that when SDP wins the next election and takes responsibility for Croatia, it will reduce VAT for hospitality and accommodation services.

He recalled that a lower VAT rate of 13%, which was applied in 2017, no longer applies to hospitality, underscoring that other EU countries have a lower VAT rate overall. Seventeen EU member states have recognised the importance of hospitality and apply a lower VAT in that sector and unlike Croatia, they promote the development of tourism.

The incumbent government has hit the tourism sector five times, Bernardić underscored. It abolished the lower VAT rate in hospitality and now we have the highest VAT in the sector of all Mediterranean countries, Bernardić said.

Croatia's standard VAT rate is 25%. In late 2018, Tourism Minister Gari Capelli announced that the government would reduce the VAT rate on hospitality services in 2020.

This government has relieved the economy based on fiscal possibilities. In 2020, it will reduce VAT on tourism and hospitality services, Cappelli said then in response to questions from SDP lawmakers during a parliamentary debate on three bills in the tourism sector.

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

The Central Bureau of Statistics has released data on food prices showing the real effects of the reduced VAT rate on food. According to CBS data, only meat and fruit were cheaper in January. Fruit prices fell by 2.3 per cent, and meat prices by 1.7 per cent. All the other food groups were more expensive in January than the month earlier, reports Prvi Plan on February 24, 2019.

Significant discounts, announced and advertised by retailers, and expected by the government, did not happen. On the contrary, food and non-alcoholic beverages prices in January were 0.4 per cent higher than in December 2018.

The largest retail chains announced that the prices of products (fresh meat, fish, fruits and vegetables, eggs and diapers) to which the lower VAT rate began to apply starting from 1 January 2019, were lowered as early as in December 2018.

According to some experts, the effects of halving the VAT rate (from 25% to 13%), can only be expected in two to three months, mainly since prices of some types of products depend on seasonality in supply. However, the initial data on price movements after the lower VAT rate has been introduced are not encouraging.

In January, the most substantial increase (3.7 per cent) was seen with oils and fats, as well as coffee, tea and cocoa (2.6 per cent). VAT cuts did not cover these products. However, despite the lower VAT rate, vegetables were 1.4 per cent more expensive than in December. There has been an increase year-on-year as well – in January this year, vegetables were 4.6 per cent more expensive than in January 2018.

When all is taken together, food prices in January were 0.4 per cent higher than in December. Compared to January 2018, food was cheaper by 0.8 per cent.

Expenditures for food and non-alcoholic beverages are the largest item in the household budget of an average Croatian family – they account for 27.81 per cent of the consumer basket. Therefore, the government calculated that the decreased VAT rate should save an average Croatian family 872 kuna a year. The calculation was obviously wrong since what actually happened is what many, including Finance Minister Zdravko Marić, warned about – there is no mechanism which could force retailers to turn lower VAT rates into lower consumer prices.

Consumer prices did drop in January by 0.9 per cent, but not due to lower food prices, but mostly due to falling clothing and footwear prices (13 per cent) during January's seasonal sales.

Translated from Prvi Plan.

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

The year which began a few hours ago will bring us at least two elections (European and parliamentary), which means there will be no painful cuts or reforms. However, there will be many new rules and regulations which will in some ways significantly change how people in Croatia live their lives, reports Večernji List on January 1, 2019.

The new year has brought us a lower VAT rate on a variety of foods and non-prescription drugs. Although there was initially much doubt whether lower VAT on fresh meat and fish, fruit and vegetables would bring lower prices for consumers, some retail chains have already lowered the prices of these products. It can be expected that they will be soon be followed by their competition. The average Croatian family should have around 1,000 kuna more in its budget due to the lower VAT rate.

The new year also brings a higher minimum wage (3,000 kuna instead of 2,751 kuna). Also, parents of university and high school students who receive scholarships or receive prizes will not have to fear that they will have to pay a higher income tax in the future due to the success of their children. Certain provisions of the new Law on the Rights of Croatian Veterans and Their Family Members also come into force.

Another major novelty is the pension reform, bringing a quicker harmonisation of the retirement age for women and men. Full equality when it comes to the retirement age will be achieved in 2027 when both women and men will retire at age 65. “Emancipation” will be confirmed in 2033, through an increase in retirement age for everybody. Both women and men will then retire at age 67.

There is good news for people wanting to buy expensive cars. They will be able to write off 50 per cent of the VAT even for vehicles costing more than 400,000 kuna, which used to be the upper limit for VAT deduction. According to the EU rules, the government had to expand the measure to include more expensive vehicles.

As of 1 January, the property transfer tax will be cut. Last year, this tax which is paid when you buy or sell real estate was reduced from five to four per cent, and this year it will be just three per cent. Also, there is a lower income tax on higher salaries. Income between 17,500 kuna and 30,000 kuna a month will be taxed at the rate of 24 per cent, instead of 36 per cent. The higher tax bracket will cover income over 30,000 kuna. Two salary contributions have been abolished, but there is now a higher contribution for health insurance.

Starting from January, owners of private rentals will have to pay a tax between 150 and 1,500 kuna, which will be determined by towns and municipalities. In local authority units which do not make their decision by 15 January, the tax will be 750 kuna.

Changes are coming to students as well, whose minimum wage will be increased from 21.50 kuna to 23.44 kuna.

A new health care act is also in force, which means that all health centres will have to have at least one physician on call on weekends and holidays. The law also introduces changes in the organisation of emergency medical assistance through the integration of unified emergency hospital admissions.

Most misdemeanour courts in Croatia are abolished as of today. They have been merged with municipal courts. The only two misdemeanour courts that remain are those in Split and Zagreb. Also, judges at the same court level will receive equal pay, and all of them, as well as state attorneys, will receive six per cent higher salaries.

Fostering will become a profession. Allowance paid to foster parents, who have so far received between 300 and 500 kuna per month, will increase to 2,500 kuna. For foster parents of children and adults with special needs, the amount will reach between 5,000 and 6,000 kuna. Foster parents will also continue to receive a supply allowance, which is now between 1,800 and 2,200 kuna.

More news on Croatia’s tax system can be found in our Business section.

Translated from Večernji List (reported by Iva Boban Valečić).

ZAGREB, December 11, 2018 - Finance Minister Zdravko Marić said on Tuesday it was too early to speak about a lower VAT rate in tourism sector, which was announced by Tourism Minister Gari Cappelli on Monday, given that the latest round of tax changes had only been adopted.

Addressing reporters ahead of a lecture he was expected to give to students at the Rijeka Faculty of Economics, Marić recalled that the parliament had passed nine laws that would go into force on the first day of 2019, and noted that that was the third round of tax breaks. "All the future steps will be analysed and discussed. I would not make any announcements for the time being," said Marić.

In a parliamentary debate on three tourism-related bills, Minister Cappelli said that the government would cut VAT on restaurant services in 2020. He said that when asked by Social Democrat Saša Đujić if there was room to lower the current 25% VAT rate on restaurant services to the previous, 13% rate considering that VAT revenues were growing and the economic situation was generally better.

Marić said that VAT as the most abundant budget revenue that puts Croatia at the very top of EU countries in terms of the share of VAT in GDP, definitely created room "for something more to be done in that regard."

Responding to a reporter's remark that Cappelli mentioned a lower VAT rate and if his statement meant that the tourism minister did not have the Finance Ministry's support, Marić said that the government would discuss the matter and that there was plenty of time for that. "I would not want to make any announcements for the time being, it's too early, we have just adopted the tax laws and they are about to go into force," said the finance minister.

Asked if he feared that individual VAT cuts could bring into question a cut in the standard VAT rate, Marić said that he did not and that the government would eventually take a unanimous position on the matter.

More news on Croatia’s taxes can be found in the Business section.

ZAGREB, November 30, 2018 - The government on Friday endorsed a regulation to increase excise tax on cigarettes that will raise the price of cigarettes in Croatia by two kuna a pack, and on vehicles in an effort to prevent a possible price hike on cars following the introduction of new EU measures on exhaust fumes.

Presenting the excise tax on cigarettes state secretary in the Finance Ministry Zdravko Zrinušić said that the price of a packet of cigarettes should not increase more than two kuna.

The regulation aligns the minimum excise duties on cigarettes with EU Directive 2011/64/EU which requires Member States to levy a minimum rate of excise duties on cigarettes. This minimum rate must consist of: a specific component of between 7.5% and 76.5% of the total tax burden (TTB) – expressed as a fixed amount per 1000 cigarettes.

The regulation determines that the excise duty be increased from 310 kuna to 335 kuna for 1000 cigarettes while the proportional duty will remain at 34% of the retail price. The regulation enters into force on December 3

Additional reduction in value components on vehicle tax proposed

The government also endorsed a regulation regarding a special vehicle tax that will enter into force as of 1 January.

Zrinušić explained that the regulation will reduce the burden of the value component of the vehicle tax and introduces an excise duty on CO2 emissions per kilometre.

That means reducing the value component in order to reduce the tax burden on vehicles. A reduction of 6.8% is planned in the first phase or about 97 million kuna, and if the trend of vehicle purchases continues as it is now that could mean a reduction of 350 million kuna in tax breaks, Zrinušić explained.

The regulation means that the value component of vehicle tax would be reduced from 4,500 kuna to 3,500 kuna for vehicles valued by between 200,000 kuna and 250,000 kuna.

Vehicles classified as category 1 and 2 with a value up to 150,000 kuna will still not be required to pay the value component while the third category of vehicles valued between 150,000 to 200,000 kuna would remain at the current 2,000 kuna.

In early October, Finance Minister Zdravko Marić announced that he would try and buffer any possible price hike on the cost of vehicles due to the new way exhaust fumes are measured as set by the EU.

For more on taxes in Croatia, click here.

Finance Minister Zdravko Marić has announced that starting from the beginning of 2019 the government would cut the VAT rate from 25 to 13 percent on fresh meat, fresh fish, fruits, vegetables, diapers, live cattle and eggs. The logical question is whether large retail chains will lower the food prices for end consumers or whether they will pocket the difference and extra money, reports Index.hr on November 16, 2018.

According to the responses sent by the retail chains, consumers should feel the difference. “Since customer satisfaction is always at the centre of our business, the prices will be adapted to their advantage. If the law is passed, Lidl’s buyers will feel the tax cuts when purchasing fresh fruit, vegetables, meat, fish, eggs and diapers in Lidl's stores,” said Lidl.

This was also confirmed by Kaufland, which also plans to lower the prices of these products. “If the announced VAT reduction is implemented, we will surely adjust our prices so that the new food prices will be lowered to the full extent of the VAT reduction, which means that the announced VAT change will have a positive effect for our customers,” said Marija Franić, head of the Corporate Communications Department, Kaufland Croatia.

If the VAT rates on individual products are lowered, Tommy Split will also adjust the retail prices down, at least by the percentage of the VAT reduction. They say it is in their interest to make their products more price competitive and make consumers feel the positive effects of the new tax measures.

“We also hope that suppliers will not increase their prices, as this is also a prerequisite for lowering consumer prices when implementing the new VAT rates,” said Dario Mamić from Tommy Split’s corporate communications department.

Konzum also explained that everything depends on suppliers and, if they lower food prices, Konzum would do the same. “Konzum welcomes every move in the supply chain that leads to lower product prices for our end customers, especially when it comes to key consumer goods from the consumer basket. To make the buyers in the stores really benefit from the reduction in the VAT rate on certain products, the lower VAT rates have to be incorporated in prices by all those involved in the supply chain,” said Konzum.

If all of their suppliers, in line with good business practices, do so, they will be able to pass the reduction in the VAT to end consumers. “Konzum will definitely not use the reduction in the VAT rate to increase its margins, and we believe that other companies will do the same,” said the company.

Spar and Plodine are yet to send their answers.

For more on Croatia’s retail trading industry, click here.

Translated from Index.hr (reported by Martina Pauček Šljivak).

ZAGREB, November 15, 2018 - A set of tax changes presented in parliament on Thursday by Finance Minister Zdravko Maric sparked a heated debate, with the opposition and the ruling majority criticising one another. The strongest opposition Social Democratic Party (SDP) claimed that the government was increasing salaries for "Prime Minister Plenković' elite."

"These tax changes are inappropriate at this time... While our people are emigrating on a daily basis, the government has decided to raise the net pay for Plenković's elite of some 20,000 people. Those making more than 17,000 kuna a month will now make even more money, while others will get nothing. This is a disaster and we must talk about it," said SDP MP Gordan Maras in response to the finance minister's presentation.

MP Peđa Grbin also joined his party colleague in criticising the government. "Do you think that it is socially more acceptable to help with tax breaks 20,000 people who are already making more than 17,000 kuna net than to support the SDP's proposal to raise the non-taxable portion from 3,800 kuna to 5,000 kuna and help two thirds of Croatian citizens whose salaries range from 3,800 kuna up?" Grbin asked the finance minister.

Minister Marić explained that raising the non-taxable portion would not apply to a vast majority of tax payers. "On the other hand, I have failed to emphasise the fact that income tax revenue is revenue of local and regional self-government units and this would be a great loss for them," Marić said.

Maras then requested a recess. The request was seconded by Ivan Šuker of the ruling Croatian Democratic Union (HDZ).

In his introductory remarks, Minister Marić said that the proposed set of nine bills had been submitted for a second reading and that it represented a third round of tax and administrative relief as part of the tax reform which became effective on 1 January 2017.

The bills in question concern Value Added Tax, property sales, excise tax, profit tax, income tax, contributions, fiscalisation of cash transactions, general tax law, and administrative cooperation in taxation.

"In the first round of tax relief, the tax burden was reduced by a total of 2.3 billion kuna, and in the second round by 1.3 billion kuna. In the present bill we propose a further tax reduction of 3 billion kuna, which will bring the total tax reduction over three years to 6.6 billion kuna," Marić said.

Speaking of the most important changes proposed by the bills, Marić said that the VAT rate of 13% would be extended to include fresh or chilled meat, fish, fruit and vegetables, eggs, live animal deliveries, and children's diapers.

The VAT rate of 5% would apply to all medicines, regardless of whether they are prescription or non-prescription medicines, while the VAT rate of 13% would apply to services and copyright-related rights of writers, composers and performing artists.

Under the income tax bill, a person would qualify as a tax dependent if their annual income does not exceed 15,000 kuna (2,000 euro).

After adoption, the proposed bills are expected to go into force on 1 January 2019. Marić said that additional modifications would be made as part of secondary legislation, including those relating to the taxation of tobacco and tobacco products, a special tax on motor vehicles, and income tax rules.

The income tax rules are under public consultation and need to be adjusted to the existing labour legislation. Marić said that the plan was to increase the annual amount of non-taxable receipts from 2,500 kuna to 7,500 kuna (1,000 euro).

For more on Croatian taxes, click here.

ZAGREB, November 11, 2018 - President Kolinda Grabar-Kitarović spoke favourably on Saturday of the set of tax reform bills which the government had sent to parliament for adoption, particularly praising the move to ease the tax burden on wages.

In addition to tax reforms, the government on Friday also proposed an increase in the total annual amount of non-taxable receipts, from 2,500 kuna (340 euro) to 7,500 kuna (1,000 euro) a year.

"I think we are going in the right direction. Any easing of the burden on taxes is very good and I welcome it," Grabar-Kitarović told reporters in Paris where she would attend a ceremony marking the centenary of the end of the First World War.

"I think it's much better to increase wages than to reduce VAT, because if wages are increased, people can decide for themselves what they will do with that money," the president added.

She expressed confidence that there would be further tax breaks.

"I would like us to catch up with those countries that bring in tax breaks to attract foreign and domestic investors and enable businesses to invest more of their profits in innovation, new products and the like," Grabar-Kitarović said.

For more on Croatia’s president, click here.

ZAGREB, November 10, 2018 - The MOST opposition party accused the Andrej Plenković cabinet on Saturday of squandering taxpayers' money as budget expenditures grew faster than the economy.

Nearly all macroeconomists say that, due to the high public debt, the budget's expenditures side must be put under control, the party said in a press release, adding that it was unacceptable that expenditures were rising 5.2% without any strategy and that GDP growth was projected at only 2.8%.

It is absurd that the population is drastically decreasing yet the budget is increasing uncontrollably, MOST said, adding that when it had been part of government, it started a trend of rational budget management, yet now the ruling HDZ and its new coalition partners were squandering money again. "Mr Plenković, you are pumping the budget without any strategic goal, which will hit us in the head like a boomerang."

MOST said Croatia's GDP growth lagged behind comparable countries, pushing it to the very bottom of the European Union. In September, industrial production fell 1.5% on the month and decreased over nine months this year, it added.

Salary growth in 2019 will total only 1.1 billion kuna at a time when 180 people are leaving Croatia on a daily basis, which is a glaring example of irresponsibility towards taxpayers' money, said MOST, wondering who would generate that amount and make up for the huge difference between revenues and expenditures.

In the best case scenario, tourism results for this year will be stable and nights in the peak seasons will drop 3% on the year, MOST said.

Enterprise will hardly pull us through with the structural workforce deficit, to which the government is not offering any solutions, and a new entrepreneur must pay 22,824 kuna in annual contributions even before opening a business, the party said.

For more on the activities of MOST, click here.