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More Fiscal Measures Required From Croatia, IMF Says

by Ulrika Lomas, Tax-News.com, Brussels

06 July 2015


The International Monetary Fund (IMF) has welcomed Croatia's ongoing fiscal consolidation efforts but said that further reforms are needed.

The Government's 2015 fiscal plan contains an income tax cut worth about 0.6 percent of gross domestic product (GDP) through the realignment of tax brackets, the IMF noted. Part of the cut is offset by a couple of high-quality but low-yielding revenue measures, notably higher excises for gasoline and tobacco, and a new tax on interest earnings. But a larger portion is compensated by ad hoc and incompletely specified spending cuts, it said.

The IMF's 2015 Article IV Consultation report for Croatia encourages the authorities to flesh out a comprehensive medium-term fiscal adjustment plan with a focus on the adoption of growth-friendly measures.

The Fund advised that, for 2015, Croatia should reduce personal income tax exemptions and limit a tax break for reinvested corporate earnings. For 2016 and beyond, the IMF has recommended a shift to less distortionary taxation, including through the adoption of a modern property tax.

The Croatian Government is targeting an improvement in the nation's fiscal balance worth between 0.5 percent and 1 percent of GDP this year, to bring the deadline to about 5 to 5.5 percent of GDP.

TAGS: tax | property tax | interest | revenue guidance | gross domestic product (GDP) | budget | International Monetary Fund (IMF) | excise duty | tax reform | individual income tax | Croatia

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