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The Croatian government presented a tax reform with which it intends to increase wages



The opposition is critical of the reform

The Croatian government presented a new tax reform package, the main goal of which is to increase wages. Prime Minister Andrej Plenković announced the abolition of the local tax, and the state will settle part of the pension insurance contributions.

The first goal is to raise wages, especially the lowest wages. The second goal is to increase the purchasing power of households, and the third is to strengthen the fiscal autonomy of municipalities and cities.Plenković said at the presentation of the tax reform package.

Those with a salary of up to 700 euros would have their salaries increased by a little more than 42 euros per month, those with up to 900 euros by a little more than 34 euros, and those with 1,100 to 1,300 euros by a little more than 20 euros per month, Radio Svobodna Evropa reports. .

The sixth tax reform package envisages changes to nine laws, and it should enter into force on January 1, 2024, Plenković said.

Finance Minister Marko Primorac estimated that the announced tax reform will cost the state budget around 400 million euros annually.

The opposition warns that the government’s reform will not lead to an increase in citizens’ wages, while at the same time it will take away funds from local self-governments and damage the pension system, reports hrt.hr.

The main point of the reform is the abolition of the local tax

The key proposed change is the abolition of local tax. It is a contribution from the salary to the city or municipality where the person has registered permanent residence or where he resides for more than half a year. Its amount is prescribed by the representative body of the local self-government unit, which takes the already determined amount of income tax as the basis for the surcharge.

In municipalities, this contribution is up to ten percent, in cities with up to 30,000 inhabitants up to 12 percent, and in cities with more than 30,000 inhabitants up to 15 percent. In Zagreb, which collects almost a billion euros annually in this way, the contribution amounts to 18 percent.

Opposition: the government withdraws funds from local self-government

Plenković does not agree with the claims and emphasizes that local self-government units will be able to determine the salary tax themselves after the implementation of the tax reform. For the city of Zagreb, this may vary between 15 and 24 percent, for municipalities between 15 and 22 percent, and for cities between 15 and 22.5 and 23 percent, respectively.

The opposition is particularly critical of the abolition of the local tax, as cities and municipalities will have to raise the income tax rate in order to obtain funds. Boris Lalovac from the largest opposition party, the SDP, estimated that the government “he’s playing a game – we’ll raise your wages, but the evil mayors will take them away“.

Increase of allowances to 560 euros

The government also proposes to increase the allowances. The personal allowance will increase from EUR 530.90 to EUR 560, with Finance Minister Primorac explaining that the concept of the basic personal allowance is being abolished, while the amounts of the personal allowance for dependents are increasing. The threshold for applying a higher income tax rate will increase from EUR 47,780 to EUR 50,400.

The government will cover part of the costs for pensions

Regarding the pension insurance contribution, the government proposes to reduce the basis for pension insurance under the first pension pillar to a maximum of 300 euros. For gross salaries up to 700 euros, the relief will be set at a fixed amount of 300 euros, and for salaries from 700.01 to 1300 euros, it will gradually decrease. This will not affect the subsequent amount of the beneficiary’s pension.

Primorac explained that for taxpayers this means an increase in the net salary, especially for those with the lowest income. This refers to 53.5 percent of the total number of taxpayers who do not have to pay income tax.

Opposition MP Lalovac, on the other hand, warns that it is an injustice, since the government will pay the pensions for part of the citizens, while those with a salary above 1,300 euros will pay for it themselves. He described the government’s behavior as “a blow to the pension system”.

The fifth round of the tax reform applies from the beginning of 2021

The fifth round of tax reform was introduced by the government in 2020 and came into force on January 1, 2021. At that time, among other things, income tax rates were reduced, from 24 to 20 percent, from 36 to 30 percent, and from 12 to 10 percent. The reform also introduced tax-free income from the work or activities of a digital nomad.

Source: Rtvslo

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