Positive Effect of the Corona Crisis – VAT Payment Based on Actual Collection

The government measure of paying VAT based on actual collection, instead of according to issued invoices as it was before the corona crisis, could have a positive effect on the Croatian economy and on the country’s rating on the global competitiveness ranking of the World Economic Forum, it is emphasized on Wednesday in a statement from the Taxpayers Association Lipa. In the new edition of Lipa’s Competitiveness Barometer, in an analysis by Professor Dagmar Radin , it is stated that the measure of paying VAT based on actual collection is part of the package of economic measures introduced to mitigate the effects of the economic crisis caused by the coronavirus.

The previous regulation that prescribed VAT collection according to issued invoices regardless of the realization of collection had the effect of stifling economic growth, Radin asserted.

This is particularly problematic for small and young companies that have not yet managed to achieve profits that would secure reserves for paying tax obligations in the event of unsuccessful invoice collection, she notes, adding that this would not be a problem if the state offered an adequate legal framework through which entrepreneurs could collect receivables or more easily write off uncollected receivables.

Namely, an uncollected invoice for which the company is obliged to pay VAT to the state can only be written off as an expense after three years have passed, and only up to 5,000 kuna, if the buyer provides proof that they have corrected their input tax and the state has transferred the entire burden of collection, in a completely legally uncertain environment for which it is itself responsible, onto entrepreneurs. 

For larger uncollected amounts, for which the entrepreneur has already paid VAT to the state by law, in order to receive a refund they must sue their buyer. Thus, the private sector is actually financing the state in the hope of collecting receivables in the future, the statement notes.

Since in some countries like the United Kingdom and the USA, the write-off of uncollected debt and VAT has been facilitated in technical and deadline terms, Lipa believes that the adoption of the mentioned law shows how the government, when there is political pressure, can adopt measures that stimulate economic activity and facilitate the work of entrepreneurs in a very short time.

Although the measure is temporary, it could bring Croatia growth from the current 61.9 to 62.07 points on the global competitiveness ranking of the World Economic Forum, concludes the statement from the Taxpayers Association Lipa.

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