Caretaker finance minister Zdravko Maric said on Saturday that the purpose of the planned tax reform was to increase personal disposable income and cut corporate and household costs.

"Unburdening the wages and increasing the non-taxable part of income to 3,700 kuna, as well as expanding tax brackets and reducing the highest income tax rate, which will apply to incomes exceeding 20,000 kuna, are part of the comprehensive tax reform," Maric said in an interview with the Vecernji List daily.

The purpose of changes to the income tax system is to increase disposable income for most of the people, including highly educated people in scarce occupations, such as medical doctors, engineers and IT professionals who are leaving Croatia in large numbers for highly paid jobs in other EU countries.

Maric announced that the general profit tax rate would be reduced from 20% to 18%, while farmers and small businesses, whose annual income does not exceed 3 million kuna, would pay profit tax at a rate of 12%.

"We also intend to reduce the general VAT rate by one percentage point as soon as the necessary conditions are met, when the GDP growth rates is higher. We will redefine goods and services to which the reduced VAT rate will apply," the minister said.

In order to reduce corporate and household costs, particularly for the most vulnerable citizens, a lower VAT rate is also planned for certain utilities, primarily for electricity supply. Other tax changes are also planned to ease the burden on households and businesses.

Maric said that the necessary bills were for the most part ready and that all legislative activities should be completed as soon as possible so that they could take effect as of 1 January 2017.

Maric also commented on the budget for next year, which he described as a turning point in which Croatian public finances should continue the positive trend from 2016, as a result of which the country should exit the EU's excessive deficit procedure and improve its credit rating.

That's why our focus in 2017 will be on budget expenditure control, he said.

"Our plan is to reduce the general government budget deficit to 2% of GDP in 2017, which would further help reduce the public debt to GDP ratio," Maric said.

According to figures published by Eurostat, the statistical office of the European Union, Croatia's public debt at the end of the first quarter of 2016 was HRK 288.35 billion, down 4.7 billion from the previous year, which was the first annual decrease in public debt since such data had been tracked. The public debt to GDP ratio was 85.8%,  compared with 89.1% in 2015.

(EUR 1 = HRK 7.498627)

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