Outgoing Finance Minister Zdravko Maric said on Tuesday that the planned tax reform would focus on income and profit tax breaks, which he believes will result in a broader tax base and stimulate economic activity.   

"A simpler tax system and certain tax breaks will definitely be good news for investors and business people in Croatia," Maric told reporters on the margins of an economic conference organised by the Jutarnji List daily and the American Chamber of Commerce in Zagreb.

"Tax breaks will refer primarily to the so-called direct taxation and the system of income and profit taxes. It is good news for entrepreneurs and citizens and it is one of the measures we believe will broaden the tax base and stimulate economic activity," said Maric.

He announced a number of measures aimed at facilitating business operations and removing the numerous obstacles, both at the central and local levels, encountered by business people.

Asked if the tax reform would be implemented by the start of 2017, Maric said that he was optimistic about that.

"I expect us to have time or at least create some room for a brief public debate because this is a comprehensive tax reform and it is always good to hear different opinions," he said.

Social Democrat member of Parliament Branko Grcic, who was Regional Development and EU Funds Minister in the SDP-led government, said today that everybody expected the new government to adopt a set of laws that would reform the tax system and to reduce VAT and income and profit taxes, noting that those demanding measures would help increase competitiveness, income and personal consumption but would also pose a challenge for the state budget.

"The promises regarding the laws related to the tax reform are great, and the reform is also an additional challenge for the state budget. If we considered only the current state of the budget and disregarded the challenges that await the government, it might not be too much," Grcic told reporters on the margins of the conference.

Speaking of the challenges awaiting the new government, Grcic cited a 3 billion kuna debt in the health system, the uncertain outcome of arbitration proceedings between INA and MOL and a debt of more than 3 billion kuna related to a contract on gas business, as well as an increase in salaries of school workers in the amount of close to 2 billion kuna annually.

"The promise of about 180,000 new jobs during the term of the new government is a big challenge and we will watch closely if that will be the case. As for the 5% economic growth forecast, that is really high. Even though I wish the government, Croatia and its citizens success in achieving these goals, because that would mean higher living standards, I am a bit sceptical, Grcic said.

Asked if he believed that a draft budget could be prepared on time and the planned tax reform launched by 1 January 2017, Grcic said that that has to be done.

"As far as I understand, the VAT reduction will be postponed for a year but I expect amendments to the Income Tax Act to go into force on January 1, resulting in higher salaries for citizens," said Grcic.

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