Edis Felić: Companies should decide on the method of paying corporate income tax themselves

The other day, I spoke with the president of the Center for Public Policies and Economic Analysis (CEA), Petar Vušković, who believes that the advance payment of corporate income tax should be abolished. I conveyed our conversation to an entrepreneur who believes that Vušković is right, but he considers the payment of late fees for not paying the advance on time to be much more problematic.

I discussed with Vušković the consequences of the agreement between the government and wholesalers, and as is often the case, at some point, the conversation shifted to other topics, and we moved on to the advance payment of corporate income tax. He is against it because he believes that ‘the state cannot predict market movements like some central planner’, meaning that a company should not pay tax in this year that will be calculated in the next when the actual profit (or loss) of the business will be known. To clarify, although our entrepreneurs know this, if a company made a profit of 100,000 kuna last year, it will pay an advance payment of corporate income tax of 100,000 kuna this year, divided into 12 months.

Like-minded individuals

Both Vušković and the entrepreneur I spoke with later emphasize that the advance payment (as a legal obligation) means that companies are providing interest-free loans to the state. If a company is late in paying the advance, the state will charge it late fees, but if it turns out next year that the company paid more corporate income tax than it should have (because it made a smaller profit), the Tax Administration will reduce the base for payment or refund the money to the company. The fact that the company paid more money than it should have does not concern the state, meaning the state has not legally obliged itself to pay any interest to the company.

There is no doubt that what Vušković says makes sense. However, as a taxpayer, I believe I can also say something about this because I am obliged to pay income tax, which is assessed in the same way and I pay it in advance. My opinion, considering the expertise and knowledge of the CEA president, is that it is better for me to pay income tax (in advance) monthly, because if I waited until next year to determine how much tax I should have actually paid, I would have to pay the entire tax at once. Therefore, from my point of view, it is still more convenient for me to pay in advance in installments, and I think that is the best for all those registered in the Taxpayer Registry (RPO).

The mentioned entrepreneur shares my opinion, believing that it is better for a company, especially a small or medium one, to pay corporate income tax in advance in installments than to jeopardize liquidity by paying it all at once the following year. However, the entrepreneur highlights the problem with late fees. Besides agreeing that it is not right to charge late fees for the advance payment, he recounted a case from his personal experience two years ago when he had to pay late fees even though the tax was paid on time – April 30.

– We sent the tax return on April 26, on a Friday, because the employee who processed it was going on vacation from Monday, and on Tuesday, April 30, we paid the corporate income tax within the legal deadline. However, we were charged late fees for four days because we were supposed to pay the money on the same day we sent the return – the entrepreneur recounts.

The right to choose

For him, a bigger problem than the advance payment is not only the late fee but also the regulation that defines in which situations it will start to be calculated, because in this case, the entrepreneur believes that the only important thing is that the tax is paid by the legal deadline, and that linking the tax return and payment is meaningless.

Both interlocutors are actually right; the advance payment should not be mandatory, although, I repeat, it facilitates business for small and even medium-sized entrepreneurs. Therefore, it would be best to amend the regulation to allow companies to decide for themselves whether to pay the advance or to pay everything at once the following year. However, it is hard to expect that, as the state is hungry for money.

POST SCRIPTUM

If companies were given the right to choose whether to pay corporate income tax in advance or in one lump sum, and if they choose to pay in advance, then I believe that in the case of delayed payment, they should pay late fees because they chose how to fulfill their obligation. And if it turns out that the company overpaid corporate income tax with the advance payments, the state should not pay late fees for that. However, the state should reward companies that pay in advance, for example, by encouraging them with a percentage waiver on the next corporate income tax payment.

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