SKEGRO: LAW ON VAT TO BE CHANGED - VAT RATE REMAINS SAME

( Editorial: --> 8329 ) ZAGREB, 17 July (Hina) - Since the beginning of this year to July 15, US $1.6 million have been collected from Value Added Tax payers, which is about 50 per cent more than was planned for this year. By the end of this year, the Government will propose some changes to the VAT Law, but the uniform VAT rate will not be changed, Finance Minister Borislav Skegro said. Skegro participated in a discussion on the effects of VAT on the Croatian economy at Friday's joint session of three parliamentary committees - the Committee for Finances and State Budget, Committee for Economy, Development and Reconstruction and Committee for Labour, Social Policy and Health. Not denying some positive effects of VAT, such as the reduction of grey economy, the meeting warned about a set of negative consequences, especially the problem of insolvency and an interest rate increase. Speaking about the changes to be proposed, Skegro mentioned the increase of tax census (which determines tax payers) from the current annual gross income of US $7,800 to US $23,400-31,250 of gross annual income. Skegro also announced that the period for annual accounts will be prolonged from the current 15 to 30 days. However, there will be no change of the single 22% tax rate nor will there be introduction of more tax rates. Instead of that, reduction of taxes can be expected through smaller contributions for pension and health insurance, Skegro said. He described the introduction of VAT as successful and presented data on the growth of real income. Compared to the costs of living, the average wage in April this year was 4.6 per cent higher than in the same month last year. The average pension in May was 5.9% higher than in May last year, Skegro said. Skegro and the Croatian National Bank (HNB) Governor Marko Skreb said that VAT did not cause inflation, but only a temporary rise in retail prices in January (2.4%). Skreb warned about the problem of insolvency which he said was linked to the payment of profit taxes. Interest rates on the money market increased from 11% to 17%, said Skreb adding that this was linked with the banking system, particularly the problem of Dubrovacka Banka. Skreb also presented data on uncollected claims which amount to 14.5 billion kuna. The meeting also warned about an increase in insolvency which is primarily caused by the payment of VAT on the basis of invoiced and not paid income. An increase in interest rates was also mentioned as one of the problems. It was stressed that interest rates increased by about 60%. Entrepreneurs are paying interest rates of 18%-20%, or even 25%, if default interest is included. Opposition members warned on several occasions that "VAT has sucked all the money from economy" and described investment reduction as a long-term problem. Union and pensioners' representatives presented their data saying that retail prices had increased by about eight per cent. An increase in the prices of food, medications and communal services affects mostly the weakest social groups, especially retirees, they said. Presenting this and other negative effects of VAT on agriculture, tourism and other branches, unions and retirees asked for the reduction of VAT rate to 18% as well as for the introduction of more rates and a zero rate for basic food products. (hina) jn rml 171807 MET jul 98