From January 1, there will be no more luxury tax

From January 1 of next year, the Law on Special Tax on Luxury Products will be abolished, it was stated at today’s press conference of the Ministry of Finance.

At the conference, proposals for the Law on Excise Duties and the Law on Special Tax on Motor Vehicles were presented.

The Proposal for the Law on the Abolition of the Law on Special Tax on Luxury Products states that the revenues of the state budget from this tax are negligible, and the intention of abolishing the tax is to allow economic entities operating in the sectors covered by this tax form to prepare in time for normal business operations in the EU.
The law covers jewelry, watches, clothing and footwear made of fur and reptiles, pyrotechnic products for fireworks, weapons, as well as ivory, tortoiseshell, corals, cigarette holders, etc., which were taxed at a rate of 30 percent.

The Assistant Minister of Finance and Director of the Customs Administration, Zlatko Grabar, explained the difference between harmonized and non-harmonized excise duties, i.e., those excise duties regulated by existing EU directives and those not regulated by the EU. The latter, emphasized Finance Minister Slavko Linić, will still change due to the interest in increasing purchases within the borders of Croatia, which will become simpler with Croatia’s entry into the EU and the free movement of people within European borders.

The first step in determining final harmonized excise duties was made on January 1, 2010, but it has not been fully completed, and only now is there a move towards full alignment with EU provisions. Non-harmonized excise duties include special taxes on personal cars, other motor vehicles, vessels, and aircraft, special taxes on coffee, non-alcoholic beverages, and luxury products. Grabar emphasized that the collection of these taxes must not cause cross-border formalities in trade between EU member states. Regarding further EU requirements related to non-harmonized excise duties, it was emphasized that some special taxes have already been abolished (for example, on ships), some will be abolished, while others will be aligned with EU regulations.

The deadline for implementation begins on July 1, 2013, coinciding with Croatia’s entry into the EU. Some alignments, such as the transition from paper to electronic tracking of excise goods, began earlier, but the specific application still starts on July 1. A similar situation exists with the non-harmonized system, except for the Law on the Abolition of the Law on Special Tax on Luxury Products, which will come into force on January 1, 2013. It is considered unproductive towards EU member states, and its abolition will stimulate the manufacturing sector of small and medium-sized enterprises. The abolition of the previous 30 percent tax will thus lead to greater competitiveness among EU member states.

The new system introduces taxation on natural gas, electricity, coal, and coke, which, according to Linić, should remain at a minimal level. However, energy sources used for other purposes, not as fuel or heating fuel, energy sources going into further processing, energy sources and electricity used for cogeneration, and energy sources used as fuel in air traffic (except for private charter flights) are exempt from this tax… energy sources and electricity used in chemical and mineral processes and those energy sources used as fuel for navigation in domestic traffic, except for private vessels, are also exempt. Exemptions also apply to natural gas and electricity as fuel used in households, energy obtained from renewable energy sources, gas oil, and biofuels.

A special item is the tax on motor vehicles, which has undergone the most significant changes precisely due to future free movement. The previous tax represented a contradiction to the principles of the Treaty on the Functioning of the EU and was strictly criticized by the European Commission. The preparation of the new Law includes the retention of the previous one-time tax, while the novelty is the introduction of CO2 emissions into the taxation of motor vehicles. This is a measure to achieve the European Commission’s goals for reducing greenhouse gas emissions and fulfilling the European Commission’s obligations under the Kyoto Protocol. The tax base will thus consist of components such as a percentage of the sales or market price, ecological criteria depending on CO2 emissions, the sales price of new vehicles, and the market price of used vehicles.

As Linić considers, older vehicles emit more carbon dioxide, and thus they will also be more expensive, as will the import of the same, and the previous 20 percent of imported used vehicles will be approximately at the same level. Newer cars with a lower percentage of CO2 emissions will be cheaper. Vehicles powered exclusively by electricity and hybrid vehicles will also be exempt from taxation, while camper vehicles will have a reduced tax of up to 85 percent. Regarding excise duties on tobacco, Linić announced that they are still being negotiated but will certainly be higher once Croatia enters the EU. He also touched on the Property Tax, which will hit wealthier citizens the hardest.
– “Those who saved and bought five apartments will pay a higher tax. This is the policy of the Social Democratic Party,” said Linić.