Naslov
Changes in tax system of the republic of Croatia with purpose of increasing budget income

Autori
Reiner, Ivan

Vrsta, podvrsta i kategorija rada
Sažeci sa skupova, ostalo, ostalo

Skup
Annual International Conference on Business, Law & Economics

Mjesto i datum
Atena, Grčka, 5-8. 05.2014

Vrsta sudjelovanja
Predavanje

Vrsta recenzije
Podatak o recenziji nije dostupan

Ključne riječi
taxation of personal income, progressive tax rates, economic crisis

Sažetak
Main goal of the paper is displaying the most important changes in tax law of the Republic of Croatia which, in its mayor part have reference to three basic tax forms, which form the core of tax law of the Republic of Croatia: corporation tax, income tax and VAT. Since the introduction of corporation tax and income tax in 1994 and VAT in 1998, their legislative had been changed on several occasions, especially in 2009. Next changes occurred in 2012, which in literature has been called “little tax reform “. Mostly, those changes had been of technical-tax nature, with the goal of raising budget income, considering the current economic crisis. Weather the Republic of Croatia has been successful in accomplishing this goal and which modals of confrontation with the crisis have been chosen, shall show this short analysis of reform of specific tax forms, done in cooperation with my college assistant Ivan Reiner. Income tax Income tax was introduced in the tax law of the Republic of Croatia in 1994, as a synthetic form of taxation. Although, the principal of slice system is kept in its original form, it has developed from four-rate system into a three-rate system. Applying rates ( 15%, 25%, $40% to 12%, 25%, 40% ) are increasing tax burden, change nontaxable part of income and change the upper and lower limits for entering a higher tax class. Personal allowances are increased from 1800 kn to 2200 kn and for retirees to 3400 kn. At the first glance, this may appear as decreasing of tax burden but, with deeper insight in tax changes, we can conclude that for persons with higher income (a bit over 5500 kn) and single persons tax burden is being increased. Such increasing brings into question principal of equity and demographic policy, considering that such changes would affect so called “middle class” of citizens. This middle class in larger cities, in such urbanized country, as the Republic of Croatia, compounds the majority of tax payers. Same changes affect the motivation for work, so they can be interpreted as “punishing” the effort of individuals. At the same time there is a possibility of opposite effect than wanted one, by the principle action-reaction and confirmation of principle “one times one by which 2x2 always gives less than 4. Taxation of pensions has also been introduced. The vast immigration during 70s had its influence on tax base of people who returned into Croatia after they gained the privilege of retirement because of their high pensions. Furthermore, obligations in independent activities were being changed, so that same tax payers cant anymore pay their tax obligation in lamp sum assessment base but, they have to file annual tax application and enter a VAT system, with the exception of decision made by Tax authorities. The limit for entering a VAT system for so called “small entrepreneurs” has also been increased. Shared profit has become a new tax good in the form of dividends and shares in capital. Before these changes, shared profit had been exempted from taxation. Such standing in taxation brings into question equity of double taxation by the income tax and corporation tax, considering that it is the same tax good. Shared profit is being taxed by proportional rate of 12%, which is obvious example of influence of politics on legal system (since 2000 it has been changed for several times from a nontaxable good into a taxable one). In the process of harmonization with the EU legal system, by the Directive 48/2003, income rates on savings has become a tax good. Corporation tax Corporation tax has suffered smaller but very important changes. Although, taxation of shared profit had been introduced, reinvested profit is nontaxable, from which business is stimulated to invest in progress. To benefit from this exemption, base capital has to be increased, Tax authorities have to be informed 6 months before filing the tax application and profit must be from the same fiscal year. For companies without base capital, personal companies, individual persons, institutions, nonprofit organizations and associations do not benefit from these exemptions. For allowance for uncollectible accounts for delivered goods and services, which was confirmed as an expense, entrepreneur has a new deadline which is increased from 120 to 60 days, but in case of uncollectibility deadline is 15 days before filing the tax application. When determining transfer prices between connected companies, the principal of compared prices has no longer a priority in determining prices. All principals are equal and are a matter of choice of tax payer and Tax authorities. To minimize expanses of Tax authorities, when taxing shared profit as a new tax good, payer accounts and transfers tax and pays out only a net value ( taxed by rate of 15% ). Another important change in corporation taxation is its rates. Corporation tax rate has decreased from 35% to 20% (although there is mentioned new tax good with rate of 15% ) which gives impression of the Republic of Croatia as a new tax heaven. This has negative influence on Croatian international reputation, limits a possibility of entering new capital from western world and leads to pressure from the international community. Because of implementing Directive of mother and daughter companies, there is a leak in free movement of capital what is in contrast with goal of Single European Market. This implies further harmonization of national legal system with EU legal system, because in EU dividends are not taxable in state of Mother company. Republic of Croatia has offered this exemption but, under the term that subject to whom the profit is being paid owns at least 10% of capital in company which is paying, for the last 24 months. Considering the directives on avoiding tax shopping, Republic of Croatia do not exempt from paying corporation tax those companies which have the main or one of their goals legal or illegal tax evasion ( to prevent double non taxation ). Value added tax Periodically, with amendments and supplementations of laws considering income tax and corporation tax, VAT law was being consolidated. Supplementations were in line with harmonizing with EU legal system, first of all, so called Sixth directive dating from 1997 and Directive 2006/112 EZ. In bounders of harmonization with international standards, the most important changes are those considering the limit of entering the VAT system and its rates. Deciding on level of limit for entering VAT system is, in reality, determining importance between the principle of abundance and the principle of expense of collection of tax. Deciding on limit of 85 000 kn (dating from 1999 ) is a proof of the principal of lower expense of collection, what is confirmed by the fact that the new limit was set in 2012 on 230 000 kn. On the contrary, mentioned change of limit for entering VAT system should not be a surprise, because during those 13 years with the limit of 85 000 kn, the Republic of Croatia was on a lower bounfary compared to its bordering countries as Slovakia, Check, Romania, Bulgaria, Slovenia, Hungary, Poland ect. By the same logic, lawmaker had decided for changes of tax-technical nature considering a possibility of three months account of VAT. Limit for this possibility, which is only for entrepreneurs whose value of delivered goods and services is less than 300 000 kn, has been increased to 800 000 kn. Changes in tax rates are very significant. Considering the fact that changes of tax rates is not only of tax – technical nature, but has also tax policy meaning, changes and introducing of new, lower rates, must be viewed in wider context. Since the introducing the VAT in the Croatian legal system, standard rate was 22%, which grew to 23% in 2009 and finally to 25% in 2012. Beside the standard rate, in Croatian VAT system coexisted a 0% rate, since 1999, which was intended for products from Attachment 3 Directive 2006/112 which should not be taxed by 5% rate. Republic of Croatia exercises one more rate of 10%. Changes are also evident in the field of abolishing the possibility of reducing the pre tax. Law of VAT had approved a 30% reduction of pre tax for the delivered goods and services or at importing these, which serve for representation considering guesting and gifting business partners and also 70% of pre tax accounted for delivered goods and services, import or renting personal cars and other means for transportation. Abolishing this opportunity, possible abuse, especially in the field of representation is eliminated. It is interesting to mention that this concept is not globally implemented in the whole tax system, because in the system of corporation tax analog clauses were not changed. Directly attached to VAT, it is necessary to mention the “Law on fiscalization in cash transfer” which has achieved evident effect in filling budget and has effect on grey economy and morals of taxpayers. More concrete, by introducing fiscal cash registers, higher level of control of cash invoices has been established, higher level of informing of business and control of employees. Direct effect of “fiscalization” is evident in increasing of share of VAT in first half of 2013, although this system has been gradually introduced from January to July of 2013. It is expected half a billion kn of increase in VAT in 2013. Conclusion The well known principal of elasticity of VAT in crises and recession on the account of income tax and corporation tax has been proved one more time on the example of the Republic of Croatia. But, although VAT has the nature to adjust to new situations, it has been changed, mainly in the field in harmonization with the legal system of EU. On the contrary, changes in the field of income tax and corporation tax are moving towards the core of the problem of economic crisis. By insight in statistic data on share of tax incomes in budgetary incomes of the Republic of Croatia we can see that, in spite of changes in taxation of income and corporation taxation, after the rapid fall of income on behalf of corporation tax in 2010, until the end of the first half of 2013, incomes have not returned to its primary position. It is also important to mention that the number of taxpayers of corporation tax has not changed significantly. But, these changes have given a result in amortization of unemployment, while keeping the level of income from income tax on the same level (although significantly lower than in previous years, before crisis). Changes considering VAT had also its contribution to measures in prospect of filling the budget, especially in way of types and sizes of rates, limits in reducing the pre tax, and tax exemptions. In that prospect we can interpret latest notifications of the minister of finances, that both lower rats of VAT will be increased for 3% each. Furthermore, introduction of fiscal cash registers, has increased the income of VAT in its first months. Finally, real effect of fiscalization is expected not only in increasing of income in budget, but also in decreasing of grey economy, tax evasion and effecting on the morals of taxpayers. Lawmaker has, with its reforms in 1990is, as well with these latest in the middle of economic crisis, showed that he has interest and willingness to take optimal measures in comprehending economic crisis, but with inconsistency in ideas. Because of its uneven changes in tax forms and failed attempt to harmonize with the EU legal system, changes in the most important tax forms represent an attack on standard of Croatian citizens and by that, a barrier for improving the whole national economy. In spite of attempts in gaining universal form, abundance and low expenses in collecting taxes, wanted results are not achieved. Special effort is standing before us (or is expecting us ???) in prospect of increasing the budget incomes by social equity, as one of the highest values of EU.

Izvorni jezik
Engleski

Znanstvena područja
Pravo

POVEZANOST RADA