Rigorous new measures of the Croatian tax administration are yielding results.
By Kruno Kartus for Southeast European Times in Osijek -- 16/09/13
Croatia officials say government revenues are up 1.73 billion euros in the first half of this year because of the state's fiscalisation laws. [AFP]
At the peak of Croatia's bustling tourist season, tax inspectors are implementing the nation's new law aimed at controlling the gray economy by cracking down on businesses that avoided paying sales taxes.
Several hotels, bars and restaurants closed for several days due to financial irregularities, with perhaps the most notable example being the Carpe Diem Club on the island of Hvar, where inspectors discovered 16,000 euros of unreported income and closed the club for five days. Club employees said the money was from a weekend concert in which the club lost its online connection and was forced to issue receipts by hand.
Tourism is a primary driver of the Croatian economy, contributing more than 7 billion euros a year. The nation's service industry accounts for more than 60 percent of Croatia's GDP, making it all the more important to control the gray economy.
Finance Minister Slavko Linic said the new measures instituted this year have been successful for the tax administration, bringing in much-needed revenues to the government coffers. But the process known as "fiscalisation" is only beginning, he said.
"I'm not satisfied with the results of fiscalisation yet. It'll take more years for all to learn their tax duties and obligations," Linic told the media after the tax administration announced that collections reached record levels.
In the six months since the start of the fiscalisation, the state recorded increased revenues of 1.73 billion euros from the same period last year, the tax administration reported.
The busy tourist season was particularly profitable. In May tax receipts increased by 18.32 percent from the previous year, while in June revenues were up 21.6 percent, Croatian tax authorities told SETimes.
Davor Majetic, president of the Croatian Employers' Association (HUP), supports the finance ministry in the implementation of the new tax regulation. He said entrepreneurs who do not meet all the fiscal obligations constitute unfair competition to others.
Majetic said that obligations to the government, employees, creditors and suppliers should be met without exception by big and small entrepreneurs, but he believes some of the measures and penalties are too fierce.
Popular nightspot Carpe Diem Club was closed for five days in August after inspectors found more than 16,000 euros of unreported income. [croatiatraveller.net]
"The tax collection figures, published by the tax administration, show that one part of business owners who work in the gray zone began to report actual transactions and pay higher taxes, which we consider the ministry's success," Majetic told SETimes. "But HUP is warning about the media-covered cases where there are indications that tax authorities impose disproportionately high penalties in relation to offences they detected from the entrepreneur. Such a practice is not good since it introduces additional uncertainty among businesses and increases distrust towards tax authorities."
Nikola Mijatovic, a law faculty professor at the University of Zagreb, said he generally supports fiscalisation, but not some of its measures.
"We see that the regulations are not adequately resolved and applicable for specific situations. Personally, I consider inappropriate closing of hotels, restaurants and bars at the peak of the tourist season. Closure is not good, because it harms the state, the firm, and society. For that, there are financial fines and enforcements," Mijatovic told SETimes.
According to the research of Mihaela Bronic, an associate at the Institute of Public Finances, the country's 2010 debt amounted to 12 billion euros in unpaid taxes, and 2 billion in security contributions.
"The tax authority hasn't yet announced the current total amount of unpaid taxes and contributions in Croatia and exactly all of what this amount includes. It would also be useful to publish the change in the total amount of unpaid taxes and social security contributions over time. At least for the last few years, or a longer period," Bronic told SETimes.
What other steps should be taken regarding Croatia's gray economy? Share your thoughts in the comment section below.