Effect of Expenditures in Personal Income Taxation on Horizontal Equity in Croatia

financial theory and hrvoje šimović: practice effect of expenditures in personal income taxation on horizontal equity in croatia

245 36 (3) 245-267 (2012) Hidden Public Expenditure: the Future of Tax Tax of Future the Expenditure: Public Hidden organized by the Institute of Public Finance in Zagreb on February 10, 2012. organized

Received: December 28, 2011

The author would like to thank two anonymous referees and Dr. Ivica Urban for their useful The comments author and would like to thank two anonymous referees and Dr. on horizontal equity in in equity horizontal on suggestions. Hrvoje ŠIMOVIĆ University of Zagreb, Faculty of Economics and Business, J. F. Kennedy Square 6, 10000 Zagreb, Croatia University of Zagreb, Faculty of Economics and Business, J. F. e-mail: [email protected] Review article** UDC: 336.226(497.5)

Croatia personal income taxation taxation income personal Accepted: March 12, 2012 doi: 10.3326/fintp.36.3.2 Expenditures Expenditures HRVOJE ŠIMOVIĆ, PhD* ŠIMOVIĆ, HRVOJE JEL: H24

A previous version of this paper was presented at the conference conference the at presented was paper this of version previous A Effect of expenditures in in expenditures of Effect ** *

- - - income. There is a similar problem with data on the amount of various types various of amount the on data with problem similar a is There income. introduction

Self-employment income or income from independent activities and tradesmen. Still, the considerable number of annual tax returns filed and the equal treatment the to lead reliefs) numerous to claims results (which it in income of sources all of payers not liable to file a tax return. Furthermore, statistical data for other sources other for data statistical Furthermore, return. tax a file to liable not payers data only the result, a As 2005. year the before differently formed were income of available for the period 2001-2004 are for employment income and self-employ ment of reliefs according to the sources of income, as they are available from 2005. expenditures is performed according to the sources different of income related to in Croatia. PIT The bases for this analysis are Administration the statistical reports from the Tax surtax from PIT separate to impossible is it As returns. tax annual processed the on in the aforementioned reports, they have to be examined jointly in the empirical tax include not do they that is reports these with problem The analysis. the of part complexity. When it comes to expenditures, PIT complexity. in addition to the basic personal allowance, many reliefs can usually be claimed through As the annual tax return. analy this equity, horizontal on effect significant a have (reliefs) expenditures tax sis for Croatia must be conducted through the prism of the annual tax return. In order to examine the effect of expenditures on horizontal analysis equity, of tax 1 Personal income tax (PIT) in Croatia is a complex form of taxation. Not only are there numerous reliefs, but there are many other elements, such as multiple sour ces (types) of income, method of calculating the final tax due and conditions and possibilities of filing an annual personal income tax return that conduce to this significantly reduce the amount of taxable income, and the differences in the effec the in differences the and income, taxable of amount the reduce significantly tive tax burden between the analyzed sources of income show that there is hori personal income tax in Croatia. zontal inequity in the hori reliefs, expenditures, tax return, tax annual tax, income personal Keywords: Croatia zontal equity, of expenditures in personal income taxation in Accordingly, the Croatia analysis on has been horizontal made equity. were according effect in to still are that sources reliefs most of when 2001, since period income. the includes paper The into the introduced personal income tax system. The analysis includes only those taxpayers who filed annual personal incomereturns, tax which is a precondition for acquiring most of the tax reliefs. The findingsresearch show that taxreliefs Abstract or reducing for used procedures tax other and reliefs all include expenditures Tax deducting the amount of tax that would otherwise have to be paid by taxpayers. There are many personal income tax expenditures in Croatia and they represent effect the analyses paper This policies. social and tax the of segment important an

financial theory and hrvoje šimović: practice effect of expenditures in personal income taxation on horizontal equity in croatia 36 (3) 245-267 (2012) 246 financial theory and hrvoje šimović: practice effect of expenditures in personal income taxation on horizontal equity in croatia

247 36 (3) 245-267 (2012)

Stu issues

theoretical : equity

horizontal

and

review

literature expenditures

tax and Horizontal equity is usually analyzed based on microdata, models with special data on individuals/families or 2010). hypothetical For data a (see good Čok overview and of Urban, litera 2007; Bönke and Eichfelder, Araar (2006). ture on horizontal inequality see Duclos and the form of comparative analysis and studies of corporate income tax (CIT) incen (CIT) tax income corporate of studies and analysis comparative of form the tives (Kraljić, 2001; Raičević and Nenadić, 2005; Šimović and Mihelja Žaja, In the Croatian literature, studies related to tax expenditures and horizontal equity horizontal and expenditures tax to related studies literature, Croatian the In are scarce and usually part of a broader study of personal income taxation. in usually are region the of countries other and Croatia in expenditures tax of dies lar or equivalent income, which is a direct distortion of the principle of horizontal of principle the of distortion direct a is which income, equivalent or lar Bank, 2003). equity (World subject of this tax expenditures paper, are often regarded as one of the main cau distortion a of possibility the augments reliefs of number the in increase an for ses, simi with taxpayers from due taxes different in results often This base. tax the in One of the characteristics of tax expenditures is that they result in a partial defini partial a in result they that is expenditures tax of characteristics the of One tion of taxable income, by which the horizontal and weakened (Bratić, 2006b:122). vertical With respect to equity horizontal inequity, which of is the PIT is the normative theory of public finance tends to emphasize their drawbacks (Bratić, drawbacks their emphasize to tends finance public of theory normative the 2006b:123-125). have become a great challenge for fiscal authority and government in general. Tax general. in government and authority fiscal for challenge great a become have expenditures lead to higher costs of administration, expenditures, tax thus implementing of advantages certain are reducing there Although revenue. government cific economic and social goals. All countries use tax expenditures, mostly with direct taxes (personal and corporate income tax). Due to their increasing number and volume, their correct use as well as quality administration and registration 2 expenditures are a frequent instrument used by a government to achieve spe Tax tax expenditures have a significant effect on horizontal equity in personal income personal in equity horizontal on effect significant a have expenditures tax taxation. ctive tax burden. The basic methodology used for that is the calculation of average average of calculation the is that for used methodology basic The burden. tax ctive that show findings The income. of sources the to according rates tax effective and and exemptions in PIT, as well as the most important changes in the period 2001- period the in changes important most the as well as PIT, in exemptions and 2010. After that, a study of trends in the number of annual tax returns structure of tax refunds and will be made. The the central part of the paper examines the amount and the structure of PIT reliefs and their effect on the average and effe The main goal of this paper is to determine how expenditures incurred through a over an and framework theoretical the Besides equity. horizontal affect return tax reliefs of evolution and types the examine will paper the studies, existing of view conclusion conclusion that such data can be a good base for in PIT. equity horizontal on expenditures the analysis of the effect of

croatia

expenditures

tax

income

personal

income tax), certain tax expenditures that reduce the tax base are allowed. This can lower the advance payments made below the tax due that would be assessed light, this In return. tax the in tariff progressive the of application the to according a reduced tax rate can be viewed as a tax expenditure as well. expenditures can be divided into two groups: reduction of the tax base and reduc and base tax the of reduction groups: two into divided be can expenditures tion of tax due. In this context, the reduced tax rate used for different sources of Personal 1). picture (see expenditures tax of type third a as viewed be can income sources other some from and capital from rights, property and assets from income due tax final as treated are payments advance paid the so rate, tax one with taxed is (submission of tax return is not obligatory). In these cases (excluding the capital 3 The introduction stated that PIT is a complex form of taxation in Croatia. This complexity is partly due to the number of tax According expenditures. to defini of amount the deduct or reduce that procedures taxation are expenditures tax tion, PIT Therefore, 2006a). (Bratić, pay to have otherwise would taxpayers the that tax tax burden and income among different social groups. Along with these empirical empirical these with Along groups. social different among income and burden tax studies, there is an ample number of reviews that showing that the PIT system is con the and expenditures tax existing of number large the to due complex highly 2010; Šimović sequent distortion of the principle of horizontal equity (see Zuber, and Deskar Škrbić, 2010). tion of income and the tax burden (Kesner-Škreb et al., 2001; Kesner-Škreb and Madžarević-Šujster, 2004; Sever and Drezgić, Although the research focus of these papers is pro 2003; Urban, 2007; Šimović, 2012). Urban, 2006; Čok and gressivity in the tax system and income distribution, they clearly state that expenditures tax (primarily the personal allowance) have a significant effect on tax progressivity and on the existence of horizontal inequity in the distribution of the of the tax system. Other studies only marginally examine tax of reliefs the or tax horizontal system. Other studies only marginally When speaking equity. generally about equity in taxation, the Croatian literature has a considerable number of debates and analyses of consumption-based income-based tax systems (for a quality overview and analysis see Blažić, 2006). and On the other hand, the few empirical studies tend to be focused on the issues of distribu the in inequity as well as equity, horizontal and vertical and progressivity Croatia (Bratić and Urban, 2006). They analyzed value-added CIT, PIT, tax and expenditu CIT analyzed (2011) Bratić expenditures. tax transaction property real res in Croatia as well. These studies show that there are numerous consistency the in distortion a tax and base tax the of reliefs reduction a in result that Croatia and tax exemptions in 2010; 2010; Lazović-Pita and Pita, 2012). There is only one analysis of PIT and CIT expenditures in Slovenia (Klun, 2012), but there are comparative analyses of PIT Drezgić, 2012). 2006; Blažić and reliefs (Blažić, Bratić and Urban conducted the only systematic study of tax expenditures in

financial theory and hrvoje šimović: practice effect of expenditures in personal income taxation on horizontal equity in croatia 36 (3) 245-267 (2012) 248 financial theory and hrvoje šimović: practice effect of expenditures in personal income taxation on horizontal equity in croatia

249 36 (3) 245-267 (2012)

Deducted income ASNC and HMA) (excluded receipts, lump-sum expenditures) augmented expenditures, augmented expenditures, Augmented PA (basic PA, (basic PA, Augmented PA dependents, additional PA, dependents, additional PA,

of tax rate Reduction Reduction and HMA for and HMA of the tax base (CWMD, ASNC (CWMD, self-employment) Reduction of tax due In Act 2001 was a introduced, new and most of the 1 PIT expenditures PIT

icture Table A2 shows the table with changes in PIT expenditures in the period 2001-2010. A2 shows the table with changes in PIT Table Table A1 is an addition to table 1 as it shows the number of taxpayers for every tax expenditure in the period period the in expenditure tax every for taxpayers of number the shows it as 1 table to addition an is A1 Table see Bratić and Urban (2006). expenditures, under observation. For more precise classification of PIT adjusted. Generally speaking, a change in basic personal allowance causes a chan a causes allowance personal basic in change a speaking, Generally adjusted. ge in additional personal allowance for dependents and in personal allowance for taxpayers in ASNC. The next modification of the Act (OG 136/03) introduced reliefs and exemptions for CWMD, ASNC, incentives for employment, etc.). In the next modification of Act the (OG 150/02), the basic personal allowance was increased (1,500 kuna) and the additional personal allowance for dependents was 80/10), it can be said without hesitation that there is constancy only in the many changes in tax expenditures. reliefs that were then brought in exist to this day (additional personal allowance, Since 2001, when the new Personal Income Tax Act was introduced (OG 127/00), (OG introduced was Act Tax Income Personal new the when 2001, Since (OG 2010 of July the in Act existing the of modifications observed latest the to up deducted income in tax returns for the period 2002-2009. In this period, 20 types of tax expenditures existed according to Administra the Tax classification of the tion. tax base reduction. 1 Table shows the types of tax expenditures, i.e. nominal amounts of reliefs and turn. This primarily includes the different types of tax base reductions and tax due tax and reductions base tax of types different the includes primarily This turn. reductions. Basic personal allowance and additional personal allowance for de system, are pendents, especially which important are in claimed the in the PAYE As the subject of this paper includes the instrument of an annual tax return, analy return, tax annual an of instrument the includes paper this of subject the As sis will be focused on tax expenditures made or reliefs acquired through the re areas of special national concern, HMA – hill and mountain areas. of special national concern, HMA areas Author. Source: Annotation: PA – Annotation:personal PA allowance, CWMD – Croatian wartime military disabled, ASNC – P expenditures PIT of Types

1.6 0.6 15.0 13.9 2009 154.4 2.5 0.7 25.3 14.1 2008 164.0 2.8 0.7 29.9 13.4 2007 210.2 3.3 0.9 38.5 13.8 2006 193.5 4.4 1.2 69.5 13.7 2005 178.6 On the other hand, new non-taxable new hand, other the On 4.0 0.7 76.3 10.8 2004 168.3 4.3 7.4 0.2 84.3 2003 154.4 9.2 49.1 61.3 2002

1 Expenditures for education and profe ssional improvement Expenditures for R&D loss brought Tax forward and deducted Type of PIT of PIT Type expenditure Salaries paid out to newly employed persons Rewards to pupils for practical work able vings, for additional and private health insurance and for voluntary pension insurance, as well as reliefs a The following reliefs were abolished: reliefs for premiums for life insurance that have characteristics of 3 4 5 1 2 s housing dedicated on paid interest premises, residential first the of building or purchase services, medical for loans or on loans for the maintenance of existing residential premises. (in millions kuna) employer himself) became tax deductible (for a more detailed review of reliefs’ A2). Act, see table Tax modifications in the Personal Income T for in the tax period returns Nominal 2002-2009 (expenditures) amount of reliefs ditional personal allowances were abolished. were allowances personal ditional receipts for self-employment income were introduced, such as aid for a layette, pension supplements paid by local and regional government, etc. Deducted inco me for expenditures for education and awards to pupils state aid regulations. In was addition, expenditures up to 6,000 kuna per year for pay harmonized with the or employees of behalf (on insurance pension voluntary for premiums of ment ced in 2005, was to simplify taxation and limit the maximum amount of additional of amount maximum the limit and taxation simplify to was 2005, in ced per basic in increase an meant also It year). per kuna (12,000 allowance personal sonal allowance to 1,600 kuna and changes in additional personal allowance for dependents. In the next modification of the Act (OG 73/08), the basic personal led 80/10) (OG 2010 July in changes and kuna, 1,800 to increased was allowance to the most significant changes in tax expenditures. Reliefs acquired through ad Table 1 shows that there was a significant increase in the nominal amount of reliefs of amount nominal the in increase significant a was there that shows 1 Table in 2003, mostly due to augmentation of personal allowance in ASNC, allowance, personal additional but through acquired were that also reliefs other of because had not been set. the upper limits of which introdu 177/04), (OG Act Tax Income Personal existing the behind intention The reliefs reliefs for research and development (R&D) and brought in changes to existing reliefs. The latest modification of Act the (OGprevious 30/04) once again consi with allowance personal of increase an of i.e. expenditures, tax in changes of sted pensions. income derived from respect to

financial theory and hrvoje šimović: practice effect of expenditures in personal income taxation on horizontal equity in croatia 36 (3) 245-267 (2012) 250 financial theory and hrvoje šimović: practice effect of expenditures in personal income taxation on horizontal equity in croatia

251 36 (3) 245-267 (2012) 0.7 4.7 4.2 8.4 0.8 30.1 38.5 16.6 01. 381.4 904.8 543.2 426.7 123.9 2009 1,297.4 2,005.2 3,900.3 5,236.3 0.9 3.9 4.6 0.9 11.7 28.8 40.5 20.1 371.8 921.9 596.2 191.8 129.1 atian wartime 2008 o 1,165.9 2,825.3 4,127.5 5,333.9 1.4 2.7 3.9 0.8 22.2 14.2 30.4 23.5 118.0 291.4 797.1 580.3 182.7 2007 1,163.7 2,876.8 3,972.0 5,166.0 2.5 2.8 4.0 0.7 15.9 12.9 28.9 22.3 85.6 205.6 696.1 517.2 182.4 2006 1,060.6 1,947.1 2,855.5 3,945.0 5.9 2.9 0.1 0.9 33.4 12.9 20.5 55.6 21.7 138.5 593.2 189.3 995.4 457.7 2005 3,818.8 2,050.7 2,789.9 5.0 4.0 0.6 0.7 13.4 13.4 31.4 32.9 113.0 560.4 177.7 422.1 200.7 430.5 2004 4,055.1 1,802.3 2,481.5 1,560.2 4.0 3.5 0.8 0.7 11.4 11.4 57.0 15.0 30.8 428.5 188.5 367.8 163.4 363.2 2003 3,497.6 1,612.4 2,102.7 1,383.6 8.2 3.1 8.2 2.2 0.4 87.1 25.9 609.7 612.8 184.8 231.8 828.8 177.0 2002 1,449.8

on self-employment Tax reduction based Tax on relief CWMD reduction based Tax ASNC and HMA in of tax reduction Total and surtax Total Part of PA for housing Part of PA expenses for gifts Part of PA in of PA Difference ASNC enlargements Total of PA ASNC and other areas deducted income Total for contribu Part of PA tions for health insurance in the country for medical Part of PA services for voluntary pension insurance Augmented depreciation costs deductible Tax entertainment costs Deducted income in Payment of premiums Payment of premiums having for life insurance the features of savings Payment of premiums for additional and private health insurance Payment of premiums Type of PIT of PIT Type expenditure receipts Non-taxable of artists part of Non-taxable fees artists’

20 19 17. 18 16 13 11 8 9 7 6 12 14 15 10 income as the business expenses of this kind of As income ta are tax deductible. ble 1 shows, types of tax expenditures related exclusively to self-employment in If we observe the effect of tax expenditures on horizontal equity, the development development the equity, horizontal on expenditures tax of effect the observe we If of tax expenditures shows that existing tax expenditures only apply to specific sources of income. Most of the tax expenditures are related to self-employment military disabled, ASNC – areas of special national concern; no data available for the year 20 year the for available data no concern; national special of areas – ASNC disabled, military Administration, 2011. of Finance, Tax Ministry Source: Note: PA – personalNote: PA allowance, R&D – research and development, CWMD – Cr

the

according

return

tax

income

personal

If the taxpayer does not want to file the return, the advance payments made du made payments advance the return, the file to want not does taxpayer the If annual sources Usually that is the case for an employment income originated from two or more employers in the same year same the in employers more or two from originated income employment an for case the is that Usually gular income). or when income was earned abroad. ArticleSee 39 of PersonalAct ArticlesIncomeand Tax 85-86 of Per Regulation. Tax sonal Income is relatively constant. As these taxpayers have an obligation to file a return, that amount depends on the number of self-employed persons and freelance occupa tions. Figure 1 shows that the number of taxpayers who earn their income exclu annual an Usually modest. is return a file and income of sources other from sively self-employment or income employment earn who taxpayers by filed is return tax income, whilst occasionally earning income from other sources (besides their re the PIT system in 2001 led to a significant rise in the number of filed taxreturns (firstly with employment income) in theA period rise 2001-2009. in tax refunds confirms that the increase in the number of filed tax returns is the resultpossibility of claiming certain reliefs. of the income self-employment earn who taxpayers from returns tax filed of number The compared to paid advanced payments). For to that the compared payments). reason, paid tax advanced has return a signifi Croatia. in taxation income in equity horizontal on effect crucial not still but cant, Nevertheless, numerous tax expenditures or reliefs reduce the tax due (see figure 1). The figure shows the number of filed tax returns according to the sources of in reliefs generous of introduction The refund. tax of amount total the and income annual annual tax return. ca in only special it of is Filing income, mandatory sources other With taxpayers. income the return is ses. obligatory only acquire can one for though Even due. tax final his considered are self-employment period tax given a ring benefi not is it when situations always are there return, the through reliefs tax certain (when end inthe due tax final a greater mean asitcan it, to file taxpayer the for cial lowing analysis will emphasize the tax expenditures structure according to the on horizontal equity. order to determine their effect sources of income in 4 an file to has taxpayer a reliefs, mentioned previously the of most acquire to order In All other reliefs can be used by all personal income taxpayers (of course, if they of categories some for features special certain are there Still, them). to entitled are sta considered are that self-employment for reliefs some example, For taxpayers. te aid (for R&D, etc.) or non-taxable receipts of artists and non-taxable part Artists and of (Freelance acquired through special regulations fees which are artists’ Support of Cultural and Artistic Creation Act, OG 43/96 and 44/96). The fol come come are: salaries paid out to newly employed persons, awards to pupils, expen ditures for education and professional improvement, expenditures for R&D, tax and tax and deducted and forward brought loss tax costs, entertainment deductible ASNC and HMA. in based on self-employment surtax reduction

financial theory and hrvoje šimović: practice effect of expenditures in personal income taxation on horizontal equity in croatia 36 (3) 245-267 (2012) 252 financial theory and hrvoje šimović: practice effect of expenditures in personal income taxation on horizontal equity in croatia

253 36 (3) 245-267 (2012) 0 800 600 400 200 ,800 1 1,600 1,400 1,200 1,000 2009 2009 2008

2008

2007 2007 Other sources of income

2006 2006 Tax refund (right) Tax

Self-employment income

2005 2005 Self-employment income

2004 2004 Other sources of income

Employment income

2003 2003 Employment income 2002

2002 2 1 2001 2001 0 0 igure igure 600 400 200 800 -200 300 200 100 700 600 500 400 000 900 800 1,400 1,200 1,000 1,600 Note: Data on other sources of income for the period 2001-2004 isn’t available. of income for the period 2001-2004 isn’t Note: Data on other sources Administration, 2001-2009, adapted by the author. of Finance, Tax Ministry Source: F payment (in millions kuna) for tax refund/tax Net difference of PIT. of PIT. Regardless of the number large of tax reliefs incurred in the case of income from self-employment, self-employed taxpayers usually have to pay the net difference rent that the increase in the tax refund amount in the period 2001-2009 is condi tioned by the number of taxpayers who earn employment income and who filed a reliefs. return in order to acquire the aforementioned Figure 2 is complementary to figure 1, and it shows the net difference for tax re fund or tax payment, according to the sources of income. Once again, it is appa Note: Data on other sources of income for the period 2001-2004 isn’t available. for the period 2001-2004 isn’t of income Note: Data on other sources Administration, 2001-2009, adapted by the author. Ministry of Finance, Tax Source: F refund of tax the amount returns and tax annual of filed Number kuna) (in thousands 1, -

9.1

23.7 38.5 29.4 488.6 2009 4,686.4 5,198.7 its

- and

26.7 40.5 28.0 12.5 563.8 2008 4,703.2 5,293.7 reliefs

return -

25.7 36.4 21.5 14.9 tax 609.3

2007 tax 5,135.7 4,500.6

- income 21.3 15.4 13.5

167.9 509.7 annual 2006

3,392.1 3,923.1 an

e. - 12.4 21.0 26.9 33.4 517.6 personal 2005 equity

3,242.2 3,786.8

through

reliefs horizontal

mine the effect of PIT expenditures on horizontal equity, an analy expenditures on horizontal equity, of PIT mine the effect

structure

and

2 size

acquiring effect 1 able Employment Reduction of the tax base Reduction of tax due Reduction of the tax base Reduction of tax due Reduction of the tax base Reduction of tax due of income sources Other Reduction of the tax base Reduction of tax due Total Self-employment Note: Data on other sources of income before year 2005 availableisn’t due to differences in methodology. Administration, 2005-2009, adapted by the author. of Finance, Tax Ministry Source: personal allowance (insurance premiums, housing expenses, medical services, etc.). etc.). services, medical expenses, housing premiums, (insurance allowance personal regulations, special from on rights based reliefs use mostly of income sources Other fees. artists’ of part non-taxable and artists of receipts non-taxable as such T for income of sources the to according returns tax from reliefs of amount Nominal the period 2005-2009 (in millions kuna) Figure 3 shows the average structure of PIT expenditures according to the sources of of sources the to according expenditures PIT of structure average the shows 3 Figure to related are expenditures tax certain that clear is It 2005-2009. period the in income expenditu tax particular that before mentioned been has It income. of sources certain persons, employed newly of (salaries only income self-employment to applied are res the generally are expenditures income employment additional addition, In to etc.). R&D, due rewards, base tax the of reduction the i.e. allowance, personal the in difference nominal amount of reliefs according to the sources of income. Most of the expenditu the of Most income. of sources the to according reliefs of amount nominal of res sources are related to earners different of income employment as Nevertheless, they make up burden. majority of tax tax the of share greatest the bear and payers structure the conclusions, certain to come to order In reliefs. different acquire income analysing. needs base) tax the reduce that ones of importantly (most reliefs of me is calculated in order to see the effect of tax expenditures (for different sources different (for expenditures tax of effect the see to order in calculated is me tax du on the reduction of of income) 5. the shows of 2 are the reductions tax PIT expenditures the stated, most important As previously Table precise). more be to allowance, personal annual of amount (the base 5 In order to exa be to has income of sources the to according reliefs of structure and size the of sis average and tax effective rate according Thereafter, made. to the sources of inco

financial theory and hrvoje šimović: practice effect of expenditures in personal income taxation on horizontal equity in croatia 36 (3) 245-267 (2012) 254 financial theory and hrvoje šimović: practice effect of expenditures in personal income taxation on horizontal equity in croatia

255 36 (3) 245-267 (2012)

ASNC & HMA & ASNC CWMD

19.9

Tax loss relief loss Tax R&D

voluntary pension)

Insurance premiums Education (life, additional and private health,

Other sources of income

Rewards to pupils to Rewards

Gifts Salaries newly employed newly Salaries

54.9

0.7 Housing expenses Housing Other

allowance Medical services Medical Self-employment income

Difference in personal Difference

Health ins. contributions ins. Health

Difference of PA of Difference Entertainments costs Entertainments

Employment income

18.1 Voluntary pension ins. pension Voluntary

Privata health ins. health Privata Life insurance Life Housing expenses

6.4 Artists’ fees Artists’ 4 3 Medical services 0 40 30 20 10 70 60 50 90 80

100 igure igure Receipts of artists of Receipts Source: Author’s calculation. Author’s Source: F (2005-2009 average), % for employment income of nominal reliefs Structure Source: Author’s calculation. Author’s Source: Note: PA – personal allowance, CWMD – Croatian wartime military disabled, ASNC – areas of areas – ASNC disabled, military wartime Croatian – CWMD allowance, personal – PA Note: – hill and mountain areas. special national concern, HMA F income of sources to the according (reliefs) expenditures PIT of Structure average), % (2005-2009

sources

the

according

burden

tax

effective

and

income

fective tax burdens according to sources of income for the period 2001- average of Employment income expenditures (table 3) have a significant effect on the final tax due. The most important type of these expenditures is the increase in annual personal allowance, whereas other types are practically negligible. In the period is That expenditures. tax to due halved almost was base tax the observation, under minus tax exemptions, reliefs and Differences other in these figures expenditures for different sources of (Kesner-Škreb, income, primarily for 1997). ETR, additionally point to the unequal tax treatment of certain sources of income, i.e. in Croatia. horizontal (un)equity of PIT income calculation (“income before tax”) (Kesner-Škreb, 1997). That is, ETR is calculated as ratio of annual tax and surtax due (before the reduction of tax due) of the tax base). and total earned income (before the reduction ETR reflects the real economicATR tax makes burden for the whereas taxpayer, income to relation in tax collected same the puts it because larger seem burden that ratio of final tax and surtax and the tax base. Final tax and surtax is the amount of amount the is surtax and tax Final base. tax the and surtax and tax final of ratio paid tax after the reduction of tax due, and tax base is taxable income after the reduction of the tax base. calculated is It taxpayer. the of due tax real the measures (ETR) rate tax Effective as the in share income not of collected adjusted to PIT the statutory provisions of 2009 ought to be calculated. Tables 3-5 show the average and effective tax burden tax effective and average the show 3-5 Tables calculated. be to ought 2009 on employment income, on self-employment income and on other sources of in come. the is that income the in PIT of share the by determined is (ATR) rate tax Average the as calculated is ATR words, other In 1997). (Kesner-Škreb, taxation of subject 5.2 average equity, horizontal on expenditures these of effect the determine to order In and ef shows the structure of nominal reliefs for employment income. Differences personal in allowance account for the largest The remainder portion (54.9%). relates mainly to reliefs acquired through additional per of the tax base reduction sonal allowances, most importantly tax (19.9%), deductible enlargements of personal allowance for paid housing expenses (18.1%) and insurance premiums (6.4%). for medical services As previously shown, the majority of the reliefs (according to the nominal amount nominal the to (according reliefs the of majority the shown, previously As of reliefs) apply to employment income. In such a context, it is necessary to a- an billion 3.24 from increased base tax income employment the of reductions period, kuna to 4.68 billion kuna, with an average of 4.12 Figure billion 4 kuna per year. yze the structure of employment income expenditures only. In the 2005-2009

financial theory and hrvoje šimović: practice effect of expenditures in personal income taxation on horizontal equity in croatia 36 (3) 245-267 (2012) 256 financial theory and hrvoje šimović: practice effect of expenditures in personal income taxation on horizontal equity in croatia

257 36 (3) 245-267 (2012) - 29.4 11.4% 22.8% 2009 1,591.1 6,829.1 6,799.6 58.433,1 60.024,2 30,264.9 30,264.9 29,759.3 - 28.0 11.6% 23.2% 2008 1,580.4 6,696.2 6,668.2 55,907.0 57,487.4 28,699.3 28,699.3 28,788.1 - 21.5 11.5% 23.2% 2007 1,513.4 5,855.8 5,834.3 49,319.8 50,833.2 25,727.3 25,727.3 25,105.9 as a sixth source of - 15.4 22.9% 10.9% 2006 1,386.1 4,897.1 4,881.7 43,507.5 44,893.6 23,549.5 23,549.5 21,344.1 - 12.4 22.5% 10.5% 2005 4,246.1 4,233.7 1,500.6 other income 21,745.5 18,776.6 39,021.5 40,522.1 21,745.5 6.0 13.2 11.3% 23.1% 2004 4,363.7 4,350.4 1,097.8 19,656.7 18,802.0 37,360.9 38,458.7 19,650.7 4.6 11.1 11.0% 22.9% 2003 3,855.3 3,844.1 1,129.5 18,119.6 18,124.2 16,819.3 33,813.9 34,943.4 8.2 1.3 11.9% 22.5% 2002 3,211.1 3,219.3 1,905.5 12,756.6 14,275.4 25,126.5 27,031.9 12,755.3 0.7 11.3 11.1% 21.8% 2001 2,365.7 2,354.4 1,680.1 10,440.4 10,797.6 19,557.8 21,237.9 10,439.7

3 , it was a part of income from other self-employment activities. , it was a part of income from other self-employment (8/3*100) Reduction of tax due (CWMD) Final tax and surtax (8-9) tax rate Average (10/7*100) tax rate Effective allowances loss brought Tax forward reduction Total of the tax base (4+5) base (3-6) Tax Annual tax and surtax due Employment income Other sources of income annual income Total (1+2) Annual personal able 10 8 9 6 7 4 5 2 3 1 Note: CWMD – Croatian wartime military disabled. Note: CWMD – Croatian calculation. Author’s Source: Average and effective tax burden on employment income (in millions kuna) on and effective tax burden Average 2005 T self-employment, rather than through changes in tax expenditures. The new Per Act (OG sonal 177/04) Income Tax introduced income. Other income is acquired occasionally outside employment and, until ATR and ETR ATR on self-employment income haven’t changed altho substantially, on this income ugh ATR has the been in slight decline since 2005 (table 4). This decrease can be explained through a decrease in total receipts and income from wing period. would have been twice as burdened with PIT. As reliefs which applied to additio to applied which reliefs As PIT. with burdened as twice been have would nal (and PA which made up 45% of total tax base reduction) were abolished in 2010, a greater tax burden on employment income is to be expected in the follo employment. employment. In the for period employment ATR 2001-2009, income was 22.8% on average, and ETR was 11.3% on average. In other words, had it not been for the tax expenditures that reduced the tax base, employment income taxpayers reflected in theATR double and difference between ETR as well. The two rates did not change significantly in the observedperiod, which means thatnumerous changes in tax expenditures did not affect the real tax burden on income from 0.7 1.6 0.4 9.1 6.5 635.3 644.4 11.6% 22.8% 2009 2,787.2 1,472.3 2,775.7 4,090.6 28,637.7 24,547.1 0.5 0.8 8.1 3.1 12.5 778.7 791.2 12.7% 23.5% 2008 3,320.1 1,475.6 2,927.0 4,771.5 29,094.4 33,865.9 0.9 0.7 8.2 5.1 According to the 14.9 788.9 803.8 13.1% 23.8% 2007 3,313.0 1,360.6 2,835.1 4,787.4 28,883.2 33,670.6 0.9 0.5 7.3 4.7 13.5 743.8 757.3 12.9% 23.9% 2006 3,113.2 1,226.3 2,762.2 4,649.2 27,775.3 32,424.5 0.5 2.1 6.9 11.6 21.0 829.8 850.8 14.2% 25.1% 2005 3,311.8 1,110.8 2,679.5 4,880.5 35,389.5 40,270.0 - - - 0.2 0.2 727.5 727.7 914.2 14.1% 25.2% 2004 2,294.3 2,883.3 4,263.4 33,712.0 37,975.3 - - - 0.3 0.3 694.4 694.6 865.8 13.8% 24.8% 2003 2,220.7 2,797.8 4,152.8 30,460.3 34,613.1 - - - 0.1 0.1 675.2 675.3 822.1 14.4% 24.4% 2002 1,908.8 2,771.5 3,858.3 25,906.0 29,764.3 - - - 0.1 0.1 603.2 603.2 704.6 13.9% 23.7% 2001 2,544.4 1,798.2 3,638.0 26,226.6 22,588.6

4 Effective tax Effective rate ((7/ (3 + 4))*100) surtax (7-8) tax Average (9/6*100) rate Final tax and Reductions 3 group of ASNC and HMA Reductions CWMD ASNC Reductions 2 group of due Reductions 1 group of ASNC and the city of Vukovar Total redu Total ction of tax Annual tax and surtax due Tax base Tax (3+4-5) Annual PA Self-employ ment income (1-2) Other sources of income Net expenditures Receipts able 8.4 8.3 8.2 8.1 Self-employment accounts for a relatively high share of the hidden In economy. addition, these taxpayers

9 7 8 6 4 5 3 2 1

Note: PA – personal allowance, CWMD – Croatian wartime military disabled, ASNC – areas of areas – ASNC disabled, military wartime Croatian – CWMD allowance, personal – PA Note: – hill and mountain areas. special national concern, HMA calculation. Author’s Source: definition of ETR, these tax expenditures are included in the calculation of total can become corporate income taxpayers (voluntarily or by law), so they ought to be included in the analysis for a more realistic picture of tax burden on the self-employment income. As mentioned above, self-employment ought to be observed with special care as it is related to tax expenditures that stem from the nature of its which activity, is not the case with other sources of income (net expenditures). T kuna) (in millions income on self-employment tax burden effective and Average

financial theory and hrvoje šimović: practice effect of expenditures in personal income taxation on horizontal equity in croatia 36 (3) 245-267 (2012) 258 financial theory and hrvoje šimović: practice effect of expenditures in personal income taxation on horizontal equity in croatia

259 36 (3) 245-267 (2012)

0.3 1.0 76.0 56.3 39.8 7.9% 2009 371.9 505.6 323.5 182.1 21.9% 0.6 0.8 71.6 62.2 45.3 8.7% 2008 388.1 523.3 316.6 206.7 21.9% 0.6 0.5 62.6 19.1 40.2 8.6% 2007 383.5 466.2 288.1 178.2 22.6% 8.0 2.3 0.4 33.0 53.3 7.6% 2006 432.7 275.5 157.2 368.7 21.0% Here as well tax expenditures (annual expenditures tax well as Here 2.4 0.2 11.3 36.0 38.2 8.2% 2005 437.9 271.9 166.0 385.8 21.7% y paid personal income tax and surtax. although they significantly reduce the income compared to total receipts. receipts. total to compared income the reduce significantly they although Annual personal allowance base (6-7) Tax Final tax and surtax tax rate (9/8*100) Average tax rate (9/6*100) Effective Income from capital Income from insurance Other income Income earned abroad annual income Total Income from assets and property rights 5 able

9 6 7 8 3 4 5 1 2

Most of the other sources of income are entitled to a small number of existing expenditures in the sys PIT tem. Some sources of income, such as income from capital, are not entitled to any reliefs (not even personal of reductions acquired income, other by dominated are income of sources other that Considering allowance). the tax base through personal allowance should be examined through other income. Source: Author’s calculation. Author’s Source: Average and effective tax burden on other sources of income (in millions kuna) other sources on and effective tax burden Average effectivel 2005-2009. As in previous cases, a considerable reduction of the tax base is acqui is base tax the of reduction considerable a cases, previous in As 2005-2009. of reductions certain whereas claimed, allowance personal annual the through red exist. not do income of type this for due tax amount of personal allowance) have a considerable effect on the reduction of earned abroad. Income from capital and insurance are practically insubstantial. from capital and insurance are practically earned abroad. Income period the in drastically change not did income of sources other on ETR and ATR year (table 5). Total income from other sources is relatively low, which share greatest the can has income Other be system. consumption-oriented the to attributed in other sources, followed by income from assets and property rights and income As mentioned in the introduction, because the data for other sources of income were calculated differently up to 2005, they can be observed starting from that as well. In the period 2001-2009, ETR for self-employment income was 13.4% on on 13.4% was income self-employment for ETR 2001-2009, period the In well. as average, which is high compared to that for income from employed of income. from other sources work and crucial for the real tax burden as well. the real tax burden crucial for period observed the in decreased has income self-employment on ETR ATR, Like income, income, (22.8% ATR As between in employment income, there is an important difference in 2009) and ETR (11.6% in 2009). In this case, the reduction of tax due is not T

2009 ETR OSI

2008 2007 ATR OSI ATR

2006 ETR SE

2005 ATR SE ATR

2004 ETR EM

2003 2002 ATR EM ATR

5 2001 0 5 20 15 10 30 25 igure Still, unequal ETR for different types of income observed period. This points was to the inefficiency of PIT changes (which were retained mo throughout the the indicate burdens unequal Also, changes). rate tax not and expenditures tax stly types of income do not have the same treatment, and thus the basic precondition greatest the has self-employment from Income fulfilled. not is equity horizontal of ETR (13.4% in average), followed by employment income (11.2% in average) increase an was there 2005, After average). in (8.2% income of sources other and in ETR on employment income and a reduction in ETR on employment, bringing these two rates closer together in 2009. income from self- employment income, OSI – other sources of income. employment income, OSI – other sources calculation. Author’s Source: ETR shows the real tax burden on observed in types ETR of income. Differences As de ATR. in types of income are greater than the differences between different different that concluded be can it significant, are percentages ETR among viations Note: ATR – average tax rate, ETR – effective tax rate, EM – employment income, SE – self- Average and effective tax burden according to the sources of income (%) to the sources according and effective tax burden Average are not very great, so it can be concluded towards that uniformity over the the last couple of average Also, years. it did tax not change signifi burden tended self-employment with visible is change largest The period. observed the in cantly after 2005, but that is the result of introducing the category of other income, as mentioned before. F differe it, of lack the or equity, horizontal about conclusion a to come to order In Figure analyzed. be must income of types different on burden tax effective in nces types of income. and ETR for observed ATR previously calculated 5 shows the they exist, do income of types different between ATR in differences the Although

financial theory and hrvoje šimović: practice effect of expenditures in personal income taxation on horizontal equity in croatia 36 (3) 245-267 (2012) 260 financial theory and hrvoje šimović: practice effect of expenditures in personal income taxation on horizontal equity in croatia

261 36 (3) 245-267 (2012) ment income. conclusion

ling), rather than constant changes and apparent simplifications of the PIT system. PIT the of simplifications apparent and changes constant than rather ling), Modification of the Personal IncomeTax Act (July 2010), introduced with the As the Tax Administration has augmented its capacities for processing a produced be can equity horizontal in improvement an filed, returns tax of number large by making by even the a or, more tax tax simply, return decision mandatory, (ru me. Paradoxically, the same instrument is often the only way to acquire reliefs distort the horizontal equity principle. that, as we saw, allowed that advanced payments with a lower marginal tax rate were considered tax the of instrument the context, that In income. of types certain for due tax final return is the only way to apply the same progressive on tariff all sources of inco expenditures have a significant, but not a crucial effect on horizontal inequity in found be can inequity horizontal of explanation expenditures, tax Besides Croatia. was it when repealed was tax Comprehensive PIT. comprehensive of repeal the in Considering the restrictions of this analysis (the number of taxpayers considered is limited to those who filed an annual tax return; drawbacks for certain types of income and taxpayers exist in the statistical data), it can be concluded that tax the observed period (13.4% in average). At the same time, ETR for employment of income. 8.2% in average for other sources in average and income was 11.2% fect of tax expenditures in the reduction of real tax due. In addition, discrepancies between ETR for observed types of income indicate the existence of in burden tax greatest horizontal the had income Self-employment Croatia. in PIT in inequity ming from the nature of the activity). Regardless of the somewhat different types than more of ETR and ATR between gap the income, of types certain of taxation of 10 percentage points for every observed type of income shows the significant ef Furthermore, the analysis showed that certain types of tax expenditures ought to be to ought expenditures tax of types certain that showed analysis the Furthermore, self-employment particularly income, of sources certain of context the in observed (stem reduction due tax and expenditures tax specific to entitled is which income, analysis. The results show a significant increase in the number of annual tax retur tax annual of number the in increase significant a show results The analysis. the observed period, especially with employ ns and tax refunds in after 2001, when the comprehensive (synthetic) tax was abolished for the most part most the for abolished was tax (synthetic) comprehensive the when 2001, after were introduced. Most of and a sizeable number of reliefs, which exist to this day, the reliefs are claimed through the annual tax return, which was the basis for this racterise the PIT system, tax expenditures initia mostly Act, are Tax among Income Personal in changes the many the by supported is most claim important. This noticeable especially is trend This exemptions. and reliefs tax in changes the by ted 6 PIT in Croatia is a complex form of taxation. Although numerous elements cha significant effect of the tax expenditures in PIT on the horizontal equity or inequi or equity horizontal the on PIT in expenditures tax the of effect significant ty, i.e. distortion of the horizontal equity principle in the existing PIT system in Croatia. equal treatment of all reliefs. Furthermore, if we observe social security contribu security social observe we if Furthermore, reliefs. all of treatment equal tions (which are the greatest burden on labour in Croatia), the root of horizontal inequity should not be sought in tax expenditures, but rather in the consumption- labour income. which almost exclusively burdens the oriented tax system intention intention of simplifying the system and doing away with the additional personal the of amplification an and equity horizontal of distortion to lead could allowance, others, many like reform, aforementioned The income. employment on burden tax partially removed one group of reliefs, an offer leaving and consistent be should reforms future mind, the in that Having etc.). HMA, others unaffected (ASNC,

financial theory and hrvoje šimović: practice effect of expenditures in personal income taxation on horizontal equity in croatia 36 (3) 245-267 (2012) 262 financial theory and hrvoje šimović: practice effect of expenditures in personal income taxation on horizontal equity in croatia

263 36 (3) 245-267 (2012)

Source: Ministry of Finance, Tax Administration, 2011. Administration, Tax Finance, of Ministry Source:

Note: PA – personal allowance, R&D – research and development, CWMD – Croatian wartime military disabled, ASNC – areas of special national concern. national special of areas – ASNC disabled, military wartime Croatian – CWMD development, and research – R&D allowance, personal – PA Note:

Tax reduction based on self-employment in ASNC and HMA HMA and ASNC in self-employment on based reduction Tax 20

252 322 387 398 594

Tax reduction based on relief CWMD relief on based reduction Tax 19 5,890 5,458 4,850 3,406 12,007 11,727 9,341 6,965

Difference of PA in ASNC in PA of Difference 18 112,881 111,454 106,096 33,628 173,001 174,797 164,227 103,733

Part of PA for gifts for PA of Part 17 1,880 1,806 1,570 1,197 4,319 4,010 2,845 2,059

Part of PA for housing expenses housing for PA of Part 16 75,263 69,793 54,985 103,446 106,031 96,295 86,645

5 1 Part of PA for medical services medical for PA of Part 69,482 51,923 26,053 181,637 178,459 169,176 112,922

4 1 Part of PA for contributions for health insurance in the country the in insurance health for contributions for PA of Part 1,029 320 282 2,746 2,063 1,844 1,865

Deducted income in ASNC and other areas areas other and ASNC in income Deducted 13 4,643 3,015 2,614

2 1 Tax deductible entertainment costs entertainment deductible Tax 1,349 1,385 996 428 520 579 672 918

11 Augmented depreciation costs depreciation Augmented 4,712 5,944 5,710

0 1 Payment of premiums for voluntary pension insurance pension voluntary for premiums of Payment 32,141 23,983 15,529 9,013 4,312 37,484 38,398

9 Payment of premiums for additional and private health insurance health private and additional for premiums of Payment 234,812 231,113 211,595 216,322 218,248 213,640 447,287 223,133

8 Payment of premiums for life insurance having the features of savings of features the having insurance life for premiums of Payment 112,409 97,180 154,755 142,989 129,738 127,529 146,679 159,761

7 Non-taxable part of artists’ fees fees artists’ of part Non-taxable 1,957 793 964 1,763 1,961 484 570 713

6 Non-taxable receipts of artists of receipts Non-taxable 37 20 1 2 11 99 2 11 61 59 136

5 Tax loss brought forward and deducted and forward brought loss Tax 2,394 10,505 9,657 7,554 7,532 6,934 8,935 9,337

4 Expenditures for R&D for Expenditures 99 88 39 11 81 94 96

3 Expenditures for education and professional improvement professional and education for Expenditures 2,376 2,444 2,451 2,158 1,593 2,280 2,338

2 Rewards to pupils for practical work practical for pupils to Rewards 4 1 2 262 363 363 5 1 4 1 52 157 202

Salaries paid out for newly employed persons employed newly for out paid Salaries 1 1,288 2,090 2,487 2,861 1,892 542 787 1,000

Type of PIT expenditure PIT of Type 2006 2005 2004 2003 2002 2009 2008 2007

Reliefs and deducted income from tax returns for the period 2002-2009 (number of taxpayers) of (number 2002-2009 period the for returns tax from income deducted and Reliefs

1 1 A T able

A ppendix

the city of Vukovar Vukovar of city the

(OG 177/04) (OG Vukovar Vukovar An increase in the reliefs for ASNC, HMA and and HMA ASNC, for reliefs the in increase An •

2005 2005 1 January employment - self of city the and HMA ASNC, An increase in the basic PA to 1,600 kuna kuna 1,600 to PA basic the in increase An •

employment in in employment - self for Reliefs • since Act New category) for for category) (2 ASNC for relief the in increase An • Additional PA limited to 12,000 kuna total kuna 12,000 to limited PA Additional •

(OG 30/04) (OG

April 2004 2004 April An increase in the PA for pensions for PA the in increase An •

2003)

Reliefs for HMA (self-employment, for the year year the for (self-employment, HMA for Reliefs •

year 2003) year

ment of employees (for self-employment, for the the for self-employment, (for employees of ment

Incentives for education and professional improve professional and education for Incentives •

(OG 163/03) (OG employment, for the year 2003) year the for employment,

October 2003 2003 October Incentives for research and development (for self- (for development and research for Incentives • Reliefs for HMA introduced HMA for Reliefs •

of Vukovar of

Modifications of the PA for ASNC and the city city the and ASNC for PA the of Modifications •

medical services, etc.) services, medical

pension insurance, for housing expenses, for for expenses, housing for insurance, pension

life, additional and private health and voluntary voluntary and health private and additional life,

Additional PA introduced (for premiums for for premiums (for introduced PA Additional •

Modifications of the PA for dependents dependents for PA the of Modifications •

(OG 150/02) (OG kuna

January 2003 2003 January

An increase in the basic PA from 1,250 to 1,500 1,500 to 1,250 from PA basic the in increase An •

employment

Reliefs for ASNC and the city of Vukovar for self- for Vukovar of city the and ASNC for Reliefs • ned)

(OG 127/00) (OG income) Incentives for employment (for self-employment) self-employment) (for employment for Incentives • (conditio Vukovar of city the in

(final tax for certain types of of types certain for tax (final 1 200 1 January out some artistic or cultural activity cultural or artistic some out employment - self for Exemption • introduced introduced

New Act since since Act New Bottom rate decreased to 15% to decreased rate Bottom CWMD exemption CWMD • Reliefs for ASNC and the city of Vukovar Vukovar of city the and ASNC for Reliefs • carry who taxpayers for (25%) receipts Non-taxable •

Deducted income Deducted PA enlargement PA

Act change Act Decrease in tax rate tax in Decrease Tax reduction Tax Reduction of the tax base tax the of Reduction

Changes in PIT expenditures in the period 2001-2010 period the in expenditures PIT in Changes

2 2 A T able

financial theory and hrvoje šimović: practice effect of expenditures in personal income taxation on horizontal equity in croatia 36 (3) 245-267 (2012) 264 financial theory and hrvoje šimović: practice effect of expenditures in personal income taxation on horizontal equity in croatia

265 36 (3) 245-267 (2012)

Source: Personal Income Tax Act (OG 127/00, 150/02, 163/03, 30/04), Corporate Income Tax Act (OG 177/04, 73/08, 80/10), adapted by the author. the by adapted 80/10), 73/08, 177/04, (OG Act Tax Income Corporate 30/04), 163/03, 150/02, 127/00, (OG Act Tax Income Personal Source:

Note: CWMD – Croatian wartime military disabled, ASNC – areas of special national concern, HMA – hill and mountain areas, PA – personal allowance. personal – PA areas, mountain and hill – HMA concern, national special of areas – ASNC disabled, military wartime Croatian – CWMD Note:

income) SE)

(OG 80/10) (OG (final tax for certain types of of types certain for tax (final ning and rewards to pupils for practical work (for (for work practical for pupils to rewards and ning for the first six months of 2010) of months six first the for

Bottom rate decreased to 12% 12% to decreased rate Bottom Additional deducted income for education and trai and education for income deducted Additional • Additional PA abolished (it could be acquired acquired be could (it abolished PA Additional • 0 0 1 20 July

(OG 73/08) (OG

July 2008 2008 July An increase in the basic PA to 1,800 kuna 1,800 to PA basic the in increase An •

Deducted income Deducted PA enlargement PA

Act change Act Decrease in tax rate tax in Decrease Tax reduction Tax Reduction of the tax base tax the of Reduction , 25 (2), . Rijeka: Rijeka: . , 66 (3), . Zagreb: Financial Financial Financijska , 30 (2), 197- (2), 30 , 10.1080/1463137 Statističko izvješće o FinanzArchiv

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