Finance Minister Zdravko Marić said on Tuesday that the result of tax changes coming into force next year would result in about 2 billion kuna less tax revenue, noting that the effect on local government budgets would be fully offset.
Marić, speaking at a conference on tax policy in Koprivnica, said planned tax amendments that would take effect on January 1, including the income tax rates being reduced from 24% to 20% and from 36% to 30% and the profit tax rate being reduced from 12% to 10% for all businesses with an annual turnover of up to 7.5 million kuna.
Maric said that the brunt of this tax reduction would be solely borne by central government. Given that income tax partly constitutes a revenue for local government units, the tax distribution ratios will be changed, with towns' share increasing from 60% to 74% and counties' share from 17% to 20%.
"The effect of reduced tax revenues on local government budgets has been fully offset," confirmed Marić, adding that this was part of the process of fiscal decentralisation.
He said that by reducing direct taxes the government wanted to provide an additional impulse to economic activity, investment, employment and wage growth.
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