Is Croatian Property Tax Issue Set to be Raised Again?
June the 22nd, 2021 - The highly unpopular topic of Croatian property tax might soon raise its ugly head again. The first time it was suggested a few years ago saw huge public pushback and it was since put back on the shelf, but never entirely scrapped.
As Novac/Marina Klepo writes, in order to secure revenues for local self-government units, Slavko Kojic, the former head of finance in the City of Zagreb, said recently, the tax system needs to be revised and the dreaded Croatian property tax needs to be introduced. He isn't the only one who is calling for that particular tax, the introduction of which in Croatia has failed twice, and ingloriously.
The ongoing coronavirus pandemic has sharply increased everyone's budget deficits, so, with the introduction of a global corporate tax rate, property taxation is most often mentioned as a desirable way to increase revenue. Whether or not that is a good idea is in the title of a recently published work by the ECB. An analysis considered by 23 countries shows that the contribution of property taxes to total budget revenues is small, averaging about six percent at most. It is higher in countries with higher tax rates (such as the UK and the USA), at about ten percent, and Croatia is among the countries where it is below two percent.
In the decade after 2007, the share of these revenues increased in 12 countries, mostly in Greece, from about one percent, to more than five percent. Croatia is among the countries where there has been no increase in these revenues.
“In general, property taxes to governments can be an effective means of increasing revenue and managing public finances, and increasing the effective tax rate and base can offset other taxes,” authors Marta Rodriguez-Vives and Miguel Angel Gavilan-Rubio believe.
The European Commission, the OECD and the ECB have long recommended that countries shift from labour taxation to a property tax, which is less detrimental to growth. Among other things, it results in greater investment in more productive sectors than the construction of houses and apartments. Previous research has shown that developing countries could collect an additional amount of about two percent of GDP from property taxation.
Whether, when and in what form the topic of Croatian property tax will be on the agenda again remains unknown. The last time the government tried to introduce it was back in 2017, but under pressure from the public, especially from the Lipa Association, which began collecting signatures against and threatening a referendum, it was shelved and the government eventually gave up.
The main argument of the opponents of Croatian property tax is that the tax pressure in Croatia is already too high and that it will affect the broadest sections of the population, given that 88 percent of Croatian households live in their own properties. However, the point of the tax isn't to cover the poor, but the richer sections of the population who have more at their disposal.
For more, follow our politics section.
Finance Minister Zdravko Maric Reveals Plans to Abolish Unpopular Tax
September the 17th, 2020 - We recently reported on the fact that the much anticipated abolition of an extremely unpopular tax had been reconsidered by Finance Minister Zdravko Maric, who explained that those who believed the change was due to come into force at the beginning of 2021 had got their wires crossed.
As Poslovni Dnevnik writes on the 16th of September, 2020, Finance Minister Zdravko Maric said on Wednesday that the abolition of property transfer/sales tax is indeed planned during this government's term, and that it has never been specified that this will happen on the first day of next year, which is something that people have somehow begun to believe.
As Finance Minister Zdravko Maric told reporters recently, there is no "rethinking" on this issue because "the Government never said that it would come into force on January the 1st, 2021", but its programme does state that this government plans to abolish the unpopular tax during its mandate, but without any sort of specified time period, much less a specific date.
''Property transfer/sales tax, value added tax and food tax, these are all measures that we also put in the programme, but we didn't define when, ie, when during the mandate we'd get rid of them,'' explained Maric.
The property transfer/sale tax amounts to three percent of the market value of the purchased piece of real estate, this tax is income for cities and municipalities, and as some media portals, wrote yesterday, its abolition caused a revolt among various Croatian cities and municipalities, and finally a delay.
However, Finance Minister Zdravko Maric vehemently denies this, adding that in the current round of tax changes, the abolition of that tax was not originally envisaged.
He explained that from the first day of next year, there will be changes to income tax, ie lowering rates from 24 to 20 percent, or 36 percent down to 30 percent, as well as lowering the corporate income tax rate, from 12 to 10 percent, for all Croatian enterprises with a turnover of up to 7.5 million kuna.
In the context of a fairer distribution of the tax burden, and regardless of all previous tax changes, Maric pointed out that Croatia is still at the very top of the countries in terms of the share of VAT revenues in GDP.
Journalists also asked the Finance Minister about the postponement of the payments of leases, which was also appealed to by the employers' associations, to which Maric said that these were civil relations between private individuals and business entities. He suggested that financial institutions themselves, following the example of the Croatian Government's previous measures, should take additional measures to be accommodating towards enterprises and other clients.
Asked about the possible further prolongation of the moratorium on executions, Maric reiterated that this was down to the relationship between debtors and creditors, and that the state, for its part, had extended the deadline for another three months.
''We need to think and talk not only about the rights of debtors but also about the rights of creditors. But the creditors, who have these opportunities, should certainly follow the example of what we as a state have done, to enable some kind of repayment, or installment payment, or some other mechanisms that will make it easier to avoid great pressure in a short period of time,'' stated Finance Minister Zdravko Maric.
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