Croatian President Challenges Crisis Tax

by Lorys Charalambous, Tax-News.com, Cyprus

11 August 2009

Croatian President Stjepan Mesic has challenged the recently approved "crisis tax," which, as of August 1, imposes a 2% solidarity tax on monthly incomes of between HRK3,000 and HRK5,999 (USD580 and USD1,060) and 4% thereafter, arguing that the tax is unconstitutional and illegal, and has initiated official legal proceedings accordingly. Mesic, who approved the law back in July, has underscored that although taxation is required to reduce the budget gap, the tax will be most punitive on those on lower incomes, whilst having a negligible effect on affluent taxpayers, stating that alternative options should have been pursued.

Mesic announced on August 10 that he had referred the law to Croatia’s constitutional court, a process that is expected to take several years. Meanwhile, the "crisis tax" is expected to remain in force. Mesic wishes to see a more progressive system emerge from his challenge.

"The tax rates are not just – they are not proportional to earnings,” Mesic said in a statement. “They hit the poorest hard, while those earning ten times or more than the amount specified feel no burden,” he added, arguing that the law “does not respect the principles of justice, equality and proportionality. The new tax particularly affects the poorest in society – the majority of citizens.”

The Constitutional Court will begin examining the proposals, but it is thought unlikely that it will reach a verdict before the temporary tax expires.

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