Taxes are once again at the center of public interest, and when it comes to this topic, an indispensable interlocutor is Hrvoje Zgombić. He has been dealing with taxes for over thirty years, and exactly twenty years ago he passed the exam to become a tax advisor.
– I was the sixth person in Croatia to pass the exam, and one colleague passed the exam the same day right after me. I regret that I wasn’t in his place; today I would carry the designation 007 – Zgombić emphasizes in his style.
He began his career as a tax advisor in the early 90s, and from 2003 to 2013, he had a company majority-owned by Zgombić & Partners, which in 2010 ranked third among consulting firms in Croatia, behind Deloitte and KPMG. Today, he is the director of his tax consulting company Zgombić d.o.o. and the company Panonia Solutions, whose sole activity is VAT refunds on uncollected receivables in insolvency proceedings. Known for his public appearances where he dissects Croatian tax policy without hesitation, the topic of property tax that has stirred the domestic public could not pass without his comment.
Will the announced property tax succeed in its main premise, which is to increase the supply of apartments on the market?
– I am completely sure of that; every time you try to influence the economic decisions of taxable entities with taxes, you create distortions in the entire economy that no one can assess the effects of. The fact is that the introduction of property tax could increase supply and thus lower their price, but it is not just about that. The buyer will also have to pay tax if his apartment is not in use, and because of that, he will be willing to offer a lower price. For example, companies are purchased based on the value of discounted cash flow. When the dividend tax was introduced in 2011, that discounted cash flow was reduced by the cost of that tax. At that time, the value of companies in Croatia was reduced by 10 percent, which was the tax rate. Generally speaking, you cannot achieve fair taxation with progressive taxes. When the head of Coca-Cola pays tax, it is already included in the price of a bottle of Coca-Cola, and ultimately, the burden is borne by the consumer. With property taxes, the cultural aspect is completely neglected. We have been accustomed to investing in real estate for decades, and there were no other investment options. Today, those options are significantly greater, but the culture of investing in real estate remains. Now, a different culture is being imposed through taxes, but that mechanism – through taxes – is highly questionable.
How complicated is the Croatian tax system today?
– After a solid and comprehensive reform in 1994, all subsequent reforms can hardly receive such an attribute. For our last reforms, those from 2017 to 2019, which were loudly advertised as rounds of tax reform that bring tax relief to citizens and the economy, it is easy to prove that this relief from 2017 to 2019 literally amounted to zero kuna. However, today the tax system has become very complex. Until a few years ago, perhaps before we became an EU member, a tax advisor had to deal with all taxes because the market demand was not sufficient to allow specialization for individual forms of tax, but the legislation governing individual tax forms was much simpler and, of course, shorter. However, today everything has become very complex, the demand for services has not particularly increased, but it is no longer possible for a tax advisor to deal with all taxes. Partly because the regulations are unclear, subordinate acts are often contradictory to legal provisions, and the opinions of the Tax Administration are varied and unreliable. It is almost impossible today to deal effectively with, for example, regulations in the area of value-added tax while also monitoring regulations in the area of profit taxation, income, or other forms of tax.
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