LOWER HOUSE HOLDS HEATED DEBATE ON MINI TAX REFORM

ZAGREB, Nov 16 (Hina) - Will the mini tax reform really alleviate the tax burden on citizens and the economy or is it merely a cosmetic change which will result in the effect completely opposite to the desired one is what deputies wanted to know discussing income and profit tax drafts in the House of Representatives on Thursday. Considering that different surveys present different effects of the reform, the deputies requested that the Finance Ministry make a simulation of effects of the introduction of new tax rates by the second reading of the drafts. Most critical toward the new drafts was Ivan Suker of the Croatian Democratic Union (HDZ), who said they degraded the existing tax system. Reducing the profit tax from 35 to 25 percent will be annulled by the reduction of the protective interest rate from five to 3.5 percent and many companies will have to pay higher taxes than now, says Suker, who believes this will discourage foreign investors. The HDZ deputy welcomes the introduction of tax relief on the salaries of newly-employed persons and donations, but he wonders why one has given up tax relief on re-invested profit, which the government had promised. He believes that relief on the purchase of equipment are not an adequate incentive for investments in development. The more so as it has not been defined whether the purchase of equipment includes investments into real estate or high technology. Suker believes that introducing the third income tax rate would not help achieve the desired goal because higher salaries would increase more whereas lower salaries would remain almost unchanged. Damir Kajin of the Istrian Democratic Assembly (IDS) agreed with Suker's assessment. If the government intends to stimulate the establishment of the middle class, that is all right, but small salaries should nevertheless increase more. Therefore, Kajin proposes the introduction of five income tax rates, with the lowest rate being 10 percent and the highest perhaps even 50 percent. The IDS deputy also wondered about the losses the units of local self-government would suffer, given that their revenues from their most abundant source of income would decrease due to the reduction of the income tax. Kajin also believes the introduction of tax on dividends is questionable. Still, Kajin believes this mini tax reform will stimulate investments and employment. Jadranko Mijalic of the Croatian Social Liberal Party (HSLS) said the drafts of the new tax system was along the lines of adjusting the Croatian system to those in western Europe. However, the introduction of taxes on interests on foreign loans is questionable because it means favouring domestic banks, he said. Mijalic, too, does not agree with the introduction of taxes on dividends because it would be detrimental to the capital market. Zvonimir Sabati of the Croatian Peasants' Party (HSS) agreed with these criticisms, assessing that the tax reform in its proposed form would not be stimulating for the economy. Dragica Zgrebec of the Social Democratic Party (SDP) regretted that local taxes were not discussed within the tax reform. She added the SDP supported the introduction of several income tax rates - of 15 and 25 percent, and keeping the tax rate of 35 percent. However, she believes the regulation according to which citizens should declare the source of funds used for the purchase of more expensive real estate, cars and other property, is not defined well. It does not regulate who appraises the property nor does it regulate the statute of limitation and the like, said Zgrebec, who believes the regulation would do more harm than good. (hina) jn rml