MMF sent to Croatia: Introduce a property tax or you will bear the consequences.

According to the annual tax report of the European Commission, Estonia, Croatia, Lithuania and Slovakia have the least tax burden on property

Any further tax cuts should be compensated by the introduction of a modern real estate tax, one of the messages from the IMF to the Croatian Government. The IMF believes that Croatia must step up its savings in the period of economic growth in order to have reserves when the economy slows down. The real estate tax is recommended by the European Commission and, as things stand, the taxation of real estate will be turned into an eternal task until one of the Croatian governments respects it.

High tax burden

According to the annual tax report of the European Commission, Estonia, Croatia, Lithuania and Slovakia have the least tax burden on property, measured by the share of that tax in GDP. Estonia's property tax collects 0.3 percent of its annual GDP, while the other three countries are 0.4 percent.

In 2016, Croatia taxed the assets of its citizens with EUR 207 million (Slovenia EUR 254 million), and as our GDP grew and the tax burden remained the same, the share of this tax fell from 0.5 to 0.4 percent of GDP in 2016.

As a property tax, for Croatia, the Tax Commission of the European Commission has a tax on holiday homes and a tax paid for the change in ownership, which was reduced from 5 to 4 percent last year.

Owners of real estate in Croatia pay about two billion kuna a year, or 300 million euros of utility fees, but this is not considered to be property tax, although communal fees have all the properties of the tax.

If the fee were added to other property taxes, then the Croatian tax revenue from the property would be about one percent of GDP, which would place Croatia in the golden environment, between the old and new EU members. Twenty-eight EU members average 2.6 percent of GDP, mostly in France - 4.7 percent, the United Kingdom - 4.3 percent, Belgium - 3.6 percent, and Germany, for example, 1.1 percent of GDP .

Former socialist countries are more closely involved in citizens' property: Slovenia and the Czech Republic charge 0.6% of GDP, Poland 0.5%, Hungary 1%, Bulgaria 0.9%, Romania 0.6%.

Together with the communal fee, which is nowhere to be paid anywhere else in Croatia, the tax burden on property is similar to that of Hungary, that is, it is above average in relation to other transitional countries. The question is why then the European Commission and the IMF call only Croatia?

We're sharing our pats

Mostly because other things are called a real name! Hungarians, for example, call their tax a tax on luxury and they are paid by everyone who has cottages or apartments, with an initial release for real estate in which people live.

Revenue is local units, and the same rates are mostly related to the value of the property. A similar principle exists in other countries as well, and the basic rule is that tax rates relate to the value of the real estate, while the real estate in which they are living have a privileged tax treatment in relation to the property that is leased or in relation to the land.

The municipal contribution in Croatia is paid by all owners of real estate, it is smaller, for example in Dubrovnik, than in some Slavonian towns and it generally does not take into account the value and age of real estate.
In the latest tax reform, Finance Minister Zdravko Marić tried to pay a communal fee, with several criteria depending on his purpose and age, subject to tax, but because of citizens' resentment, Plenković stopped him on the grounds that the entire job was not well prepared.

Regardless of this, the local authorities continued to work on massive real estate appraisals, the introduction of which would be awaiting some future government.

Therefore, the tax burden on property in Croatia is not small, but the criteria for taxing holiday homes or paying communal fees are fairly uneven, which is, for the most part, the reason why political and financial mentors share us pats.

• 3 Jun, 2018
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