Croatia battles tax workarounds
The country of Croatia seems to have a tax problem.
Relatively recent reforms are aimed at helping make sure that the government collects more of the taxes that it needs to bring in revenue for public services.
Reporting from November of last year shows Croatian Prime Minister Andrej Plenkovic and Finance Minister Zdravko Maric promoting a new system of tax reforms to take effect in January.
“The current tax system in Croatia has certain negative characteristics which have led to its lack of competitiveness,” Plenkovic said in a press statement, calling Croatia's tax code “complicated” in comparison with those of other neighboring countries.
“The high tax burden, a large number of exemptions, and frequent changes are the reasons why the tax reform has featured as one of the most important reforms to be implemented during the term of this government,” Plenkovic said, noting that tax reform seeks to promote economic growth, strengthen the Croatian economy's competitiveness, help small business and promote “social justice.”
Croatian-American businessman Nenad Cuk told Balkan Business Wire more about the situation in his home country.
Cuk runs a business called CroatiaTech that is, in his words, trying to “build a bridge” between the Balkans and the United States with a diverse set of outsourcing services.
“There are various industries here that the government is trying to further watch, and is trying to tighten the loop on (tax-wise) by limiting ways people can dodge taxes when doing business,” Cuk said. “The issue here is that most people will try to avoid taxation by just paying dues under the table, and it's something both sides seemingly benefit from, as the purchaser might get a discount and the seller has untaxed money in their pocket.”
Citing things like room rentals, cafe products and various kinds of retail wares, Cuk said the Croatian government doesn't get all of the tax that it is supposed to be getting, and that can be a problem.
However, he said, the digital technology blockchain has the potential to remedy some of these problems.
Theoretically, Cuk said, the immutable ledger system could help to make sure that fewer deals go on under the table.
“Cash deals tend to happen,” Cuk said, linking modern-day black markets back to “feudal” bargaining systems and other forms of bartering that have gone on through all the centuries of human existence.
Croatia, he said, has a 25 percent tax rate, which pushes a lot of smaller businesses to do much of their business off the books.
“It's pretty high,” Cuk said. “It makes a lot of things expensive in that country.”
For tourists, he said, the tax can be more affordable, but locals often feel the pressure of paying an additional 25 percent on items they buy in a store.
By making commerce more traceable, blockchain could be a real asset for the Croatian government, Cuk said.
“Blockchain has a tremendous impact potential in the Balkan region, mainly as it is a transparent system from both the purchaser and buyer side,” Cuk said.
Organizations in this story
CroatiaTech 15 Plančićeva ulica Split, Splitsko-dalmatinska županija - 21000