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The effect of reduced tax rates and changes in tax brackets on the realized annual income of corporate taxpayers

An inefficient tax system, characterized by high tax burden, tax instability, and high administrative burden of the Tax Administration, was the reason for introducing and implementing tax reforms in the Republic of Croatia. The tax reform started with the changes introduced on January 1, 2017, while the last fifth round started with the changes that took effect on January 1, 2021. Tax reform included amendments to tax laws and changes in the methods of taxation of value-added tax, corporate tax, income tax, local taxes, real estate transfer tax, contributions, fiscalization, and excise duties. This paper shows corporate taxpayers’ reduced tax rates and extended income tax brackets. Cor- relation analysis will examine the relationship between the amount of annual income of corporate taxpayers and the amount of annual income tax paid into the state budget, and the changes introduced through tax reform. As the reform involved lowering tax rates and expanding tax brackets to which lower tax rates apply, there was expected to increase profit with a reduced profit tax. The statistical regression method was also used to predict corporate taxpayers’ profit for 2021 based on data from previous years and reduced income tax rates that came into force in 2021. The impact of the last round of tax reform on profit and profit tax will be visible only after the publication of financial statements and the state budget for 2021, which is why a correlation between variables should be re-examined.

tax reform ; tax rate ; tax bracket ; annual income ; corporate tax

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