ZAGREB - Croatia's parliament on Wednesday approved tax changes from the beginning of next year that include halving value-added tax (VAT) on major food products and lower taxation of higher salaries.
From Jan. 1, 2019, the VAT on fresh meat and fish, fruit, vegetables, eggs and diapers will be 13 percent instead of the current 25 percent. Also, the government plans to reduce the general VAT rate to 24 percent from 25 percent, from the beginning of 2020.
Croatia's general VAT rate of 25 percent is among the highest in the European Union, though exceptions are made for bread, milk, medicines and books, which carry a five percent rate.
The finance ministry says that higher budgetary income than planned last and this year, largely based on receipts from the VAT, has given the government room to lower taxes.
Croatia, whose economy currently is growing around three percent a year, plans a budget deficit of 0.5 percent of gross domestic product this year, falling to 0.4 percent in 2019.
However, some experts warn that lowering VAT is not the best tool for achieving non-taxation policy goals, such as welfare policy.
"We already have past experience that prices did not fall when a VAT rate was cut, while they did rise when some VAT rates were increased," said Nika Simurina at the Zagreb Faculty of Economy.
The other tax changes from 2019 involve a lower real estate transfer tax, which will be reduced to 3 from 4 percent.
Also, a lower income tax rate of 24 percent will be applied from the beginning of next year to salaries up to 30,000 kuna ($4,594.88) instead of up to 17,500 kuna as is the case now. A higher rate of 36 percent will remain for the salaries higher than 30,000 kuna. That will affect a small number of workers.
($1 = 6.5290 kuna)
(Reporting by Igor Ilic) ((igor.ilic@thomsonreuters.com; +385 1 4899 970; mobile +385 98 334 053;))
