Croatian Parliament Passes Crisis Tax Measures

by Ulrika Lomas, Tax-News.com, Brussels

07 August 2009

Croatia’s parliament has passed a budget revision, with higher taxes and deep expenditure cuts, in an effort to stabilize state debt amid a severe contraction in the economy.

The government has amended its 3% ‘crisis tax’ proposal to introduce it on a more progressive basis. The levy will now range between 2-4% depending on the level of income, with the country’s highest earners paying 4%. As in the previous proposal, the crisis tax will be levied on earnings above KRK3,000 (USD585) per month, whether by way of dividends, pensions or other general income sources.

Croatia’s Parliament also agreed upon a 1% increase in value-added tax, bringing the standard rate to 23%. Within the proposals a 6% tax was introduced on telephony suppliers’ revenues from text messages and mobile phone calls, which will bring an estimated HRK430m in additional revenues annually.

A bill providing support to struggling employers also passed. The bill will subsidise the wages of workers, where businesses have had to reduce the working week to 32 hours from 40. The government will pay up to 20% of contributions and 10% of net wages (13% for workers with children). The support is to run for three months, and is expected to cost around HRK200m.

It is anticipated that these changes will reduce Croatia’s budget deficit to 2.8% from 3.3%. According to the government, more expenditure cuts can be expected during 2010.

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