Round Table on Tax Reform: Croatia Already Has a Higher VAT in Tourism Than Its Competitors in the Mediterranean

At the Round Table on the Impact of Tax Reform on the Hospitality Sector in Croatia, organized by Lider and the Association of Caterers and Tourist Workers of the Croatian Chamber of Trades and Crafts (HOK), held at the Chamber of Trades in Zagreb, participants included Dragutin Ranogajec, President of the Chamber of Trades, Nenad Šepak, President of the Association of Caterers and Tourist Workers of Croatia, Zlatko Puntijar, caterer and hotelier, Ivan Nauković, caterer and brewer, Matio Celinić, caterer, and Božica Lapić from the Ministry of Tourism. The consequences of increasing VAT from 13 percent to 25 percent on business operations were presented. According to the tax reform proposal by Finance Minister Zdravko Marić, VAT is expected to be increased from 2017, but participants emphasized that the proposed increase is not in line with the Strategic Measures for Improving the Competitiveness of Croatia’s Tourism Sector from 2017 to 2020. Croatia already has a higher VAT in tourism than, for example, its competitors in the Mediterranean, where it ranges from eight to 10 percent.

Nauković presented an analysis of the operations of a catering establishment with the current VAT rate and the future rate of 25 percent, indicating that there would be a decline in profits, an increase in prices, layoffs, and difficulties in investments, which would long-term jeopardize the state’s profitability since tourism accounts for 18 percent of GDP.

What is happening is a disaster for tourism; all contracts for the next year have been signed at the current VAT rate, Puntijar emphasized. He believes that the justification for increasing the VAT rate cannot be based on reducing corporate tax because the goal is not profit, but enabling investments that lead to profit.

The position of the Ministry of Tourism is almost identical to that of the round table participants; Lapić pointed out that tourism has been a growth generator in the past year and that they have indicated to the Ministry of Finance and the Government of the Republic of Croatia what consequences the increase in the VAT rate will have. Šepak, however, hopes that in the public debate, the VAT increase will be rejected and that the state will find resources that could be obtained from increasing that tax from some other source.