Government Introduces New Tax Package Covering Wage Increases, Abolition of Surtax, and Regulation of Tipping System

The government has introduced a tax package aimed at increasing wages, which will involve amendments to nine laws. The new changes to tax regulations will raise the amount of personal deduction from 530.90 to 560 euros and reduce the base for pension insurance for the first pillar to a maximum of 300 euros.

This means that for gross wages up to 700 euros, the fixed relief will be 300 euros, for wages from 701 to 1300 euros the relief will gradually decrease, while for those above 1300 euros there will be no relief. In other words, for pension insurance contributors, this means an increase in net wage amounts, which, according to both the Prime Minister and the Minister of Finance, is particularly visible for individuals with the lowest incomes. It is important to note that this does not mean a reduction in future pension amounts.

When presenting the new tax package, which is expected to come into effect at the beginning of next year, Minister of Finance Marko Primorac explained how much this increase would amount to using the example of a single person and a family with two children. Thus, for a single person with a gross salary of 700 euros, this increase will amount to 41.82 euros, while for a family with two children and the same salary, this will mean an increase of 45 euros.

For comparison, for a single person with a gross salary of 1290 euros, the increase should amount to 6.42 euros, while for a family with two children and a salary of 1290 euros, this increase should amount to 75 cents.

According to Prime Minister Andrej Plenković, these changes aim to raise living standards and wages, preserve economic growth, and strengthen the fiscal autonomy of local self-government units. As he stated, public debt continues to decline, as does inflation, and this is an ideal year for further easing of the economy.

Greater Freedom for Local Self-Government Units

– No government has, like ours, taken such a step and borne the costs to help cities and municipalities – said Plenković, showing the growth of revenues in cities, municipalities, and counties from 2017 to 2022 from 10.6 billion to 17.7 billion kuna.

What attracted the most attention at the press conference was the delegation of income tax determination to local self-government units and the abolition of surtax, so for example, Zagreb will be able to set a lower income tax rate ranging from 15 to 23.6 percent, and a higher rate from 25 to 35.4 percent, while municipalities with a previous surtax of up to 10 percent will be able to set a lower income tax rate ranging from 15 to 22 percent, and a higher rate from 25 to 33 percent.

Cities with up to 30,000 inhabitants, which previously had a surtax of up to 12 percent, will now be allowed to set an income tax rate between 15 and 22.4 percent for the lower rate, and between 25 and 33.6 percent for the higher rate. Cities with more than 30,000 inhabitants that previously could have a surtax of up to 15 percent will have this range set at 15 to 23.6 percent for the lower rate, and 25 to 34.5 percent for the higher income tax rate.

Municipalities and cities will be required during the fourth quarter of this year, depending on size and surtax, to determine the income tax rate and publish it in the Official Gazette by the end of the year.

Another novelty is that the threshold for applying the higher income tax rate is raised from 47,780 to 50,400 euros, as well as the introduction of tax treatment for tips, which will allow tips to be left via cards up to 3360 euros annually without paying tax.

– For each issued invoice, the amount of the tip will be reported in the fiscalization system, and the monthly amount of collected tips will be reported by the employer according to the employee’s tax identification number through the JOPPD form – explained Primorac.

The new tax package also regulates donations and amortization, specifically amending the Income Tax Act, the Local Taxes Act, the Financing of Local and Regional Self-Government Units Act, the Contributions Act, the Fiscalization in Cash Transactions Act, the Profit Tax Act, the VAT Act, the Tax Consultancy Act, and the Administrative Cooperation in Tax Matters Act.