Croatia Eyes March VAT Rise

by Ulrika Lomas, Tax-News.com, Brussels

13 February 2012

During a recent sitting in Zagreb, the Croatian government united on plans to increase the standard rate of value-added tax (VAT) from 23% currently to 25% from March 1, while at the same time adopting other fiscal measures designed to redress the public finances.

The government also plans to fix at 10% the VAT levied on certain food products, including baby food, oil, sugar, and on the provision of water. In the tourism sector, the government plans to apply the reduced rate of VAT to certain services in the gastronomy industry, including food, non-alcoholic drinks, as well as beer and wine, from the beginning of 2013.

The new VAT regime is expected to generate much-needed additional fiscal revenues for the government of around HRK2.5bn (USD435m).

Following parliamentary ratification, the government also plans to impose from March 1 a 12% tax on share dividends, although small investors, with annual profits of up to HRK12,000 will remain exempt from the tax. In addition, and to encourage investment, the government has decided to exempt from tax profit reinvested in capital stock.

In power since last December, Croatia’s centre-left government has forecast economic growth of 0.8% in 2012 and 1.5% in 2013, and is predicting a 0.4% rise in gross domestic product (GDP) for last year, following two years of recession.

The World Bank and the International Monetary Fund have, however, predicted a drop in the country’s GDP of around 1% in 2012.

The government is due to present its 2012 austerity budget on February 13.

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