Craftsmen Rightly Want to Be Part of Tax Reform Like Everyone Else

Last week, I attended a press conference of the Croatian Chamber of Trades and Crafts (HOK). There was discussion about last year’s results and plans for this year, but I was particularly interested in a question raised by Miljenko Milanović, the founder of the portal Obrtnik.hr, who pointed out the issue of excluding craftsmen from the tax reform.

There was not much talk about this at the press conference. However, the president of the Accountants Section, Đurđica Mostarčić, stated that HOK had timely warned about this problem, but there has been no response from the Ministry of Finance. After the conference, I chatted a bit with colleague Milanović and Mostarčić. The issue is that around 60,000 flat-rate craftsmen (54 percent of all craftsmen) will pay more in contributions (at a rate of 15 percent for the first pillar of pension insurance) than other employees in Croatia.

Expensive Toll

The calculation from the head of the Accounting and Bookkeeping Section of the Association of Craftsmen of the City of Zagreb, Marina Perković, which was forwarded to me by colleague Milanović, shows that by excluding craftsmen from the tax reform, they have to pay double what they would pay if they were included in it. This is indeed an expensive toll, which the Ministry of Finance should consider. Namely, the base for paying contributions for flat-rate craftsmen is 624 euros, which means they pay 93.60 euros for the first pillar of pension insurance. To avoid boring you, dear reader, with various formulas, I will just mention that flat-rate craftsmen, had they been part of the tax reform, would have contributed 48.60 euros for the first pillar, which is 45 euros less.

In addition to paying higher contributions than others, flat-rate craftsmen will also pay higher income taxes this year, especially in large parts of Croatia, depending on where they have their registered craft. The surtax has been abolished, and municipalities and cities create their own income tax. Now, for flat-rate taxpayers, a flat income tax has been set at a uniform rate of 12 percent. As Mostarčić told me in a conversation at the HOK headquarters, and as I see, Perković also told colleague Milanović, this ‘uniform rate for all will put many flat-rate taxpayers in a worse position than in previous years because some cities/municipalities did not have a surtax then,’ and even those that did, did not have it as high as the current flat tax (of course, except for Zagreb with a surtax rate of 18 percent). It is worth noting that Zagreb’s flat-rate craftsmen paid 10 percent tax and an additional 18 percent surtax until the end of last year, which, when recalculated, amounted to a total of 11.80 percent. Now it is slightly higher (12 percent), but still more, not less, while in other areas where the surtax was lower or not prescribed, flat-rate craftsmen will pay much more from the New Year.

Is There an End?

This is not the end either, as accountants working for craftsmen have noticed that not only those 60,000 flat-rate taxpayers will be worse off after the tax reform, but other craftsmen – income earners – will also pay the toll. Their base for calculating the first pillar of pension insurance is 1,014 euros, which means they will contribute 152.10 euros monthly (at a rate of 15 percent). In contrast, directors and members of company management, who also have the same base (1,014 euros), will have a monthly amount for paying the first pillar of pension insurance of 130.65 euros or 21.45 euros less than income-earning craftsmen.

One does not need to be particularly smart to conclude that such a system is not fair because the tax reform should have affected everyone registered to work in Croatia. Moreover, there were not many criticisms of the newly established system. It should have included all those who work, that is, all 112,180 craftsmen. At the press conference, HOK President Dalibor Kratohvil stated that the number of crafts increased by 10,027 or 9.8 percent last year and that all crafts employed 213,212 people (craftsmen plus workers), which is 12.9 percent of the total employed in Croatia according to data from November 2023. These figures show how important craftsmanship is, which is why we appeal to the Government to reconsider its decision.

POST SCRIPTUM

At the press conference, the president of the Accountants Guild, Đurđica Mostarčić, stated that HOK had warned the Ministry of Finance about the shortcomings of the tax reform, but there has been no response from the other side.

– Unfortunately, since January 4, when the Regulation came into force, I have not seen the Ministry’s explanation. If it exists, it is probably written in the style of ‘this was not foreseen by the tax reform’ – said Mostarčić.