Name and Shame: Croatia finding its way out of tax evasion anarchy

Croatian finance minister Slavko Linic

The concepts of “paying taxes” and “mandatory employer contributions to pension/superannuation funds” that form a large part of good corporate and general citizenship in western democracies have eluded the Croatian income earners on a grand scale, it seems.

While the majority of corporate or individual citizens in the West complain about the taxes, they pay them nevertheless. Those who dodge or try to dodge paying taxes, or part of them, mainly get caught in the end. Tax evasion though still remains a big problem for western governments, but not as big as the Croatian one appears.

Dictionaries usually define tax avoidance as the arrangement of one’s financial affairs so that one only pays the minimum amount of tax required by law. Paying minimum tax therefore would still be within the law and this has been rattling western governments for quite some years. Indeed, the 2011 OECD Tax and Crime conference would suggest that governments are serious about attacking tax evasion in many respects, including whole-government international cooperation, which could also mean targeting the lack of transparency of offshore bank accounts that have provided tax-havens for many at the expense of lost revenues for governments.

In most western democracies, people have come to understand that one’s actions can either be within the law, or outside of it – legal or illegal. This is how civilised societies have functioned for centuries. It would seem that in their efforts to secure tax revenue to a fuller degree, western governments are entering the realms of creating new legal concepts when it comes to tax evasion: acceptable legality and unacceptable legality.

Recently, February 2012, the Croatian government (finance minister Slavko Linic) has identified some 42 billion Croatian Kunas owed to the government in unpaid taxes.

That is a whopping 35% of the country’s government’s annual budget for 2012!

Obviously there’s something very wrong with citizen behavior when it comes to paying taxes and other dues to the government in Croatia. Croatia has all required legislation covering taxation obligations and amendments are passed as required.

One would not be far from wrong in concluding that the concepts of legal and illegal when it comes to paying taxes haven’t featured strongly as obligatory conformity in citizen’s psyche of Croatia, and most likely in all former communist countries. The nurturing of obedient citizenship mainly revolved around building the myth of communist/socialist righteousness, which included the expectation that the government, or someone else “but not me”, will provide for a good life.

Croatia’s finance minister Linic has recently stated: “We live in a country where there is no conscience that taxes must be paid, and am, therefore, not surprised that we have 42 billion Kunas of unpaid tax dues”.

While those who owe tax to the government will be given favourable conditions to pay their dues in accordance with the law, and as part of the government’s support of business, those companies that cannot pay their dues even when the interest on tax debt is written off, will have their operations blocked and bankruptcies or insolvencies will ensue.

Linic said that that among tax debtors there are 131,000 legal entities, 261, 000 self-employed and 1.3 million individuals.

Now given that the number of employed people in Croatia has dropped below 1.4 million in late 2011 it would seem that among individual tax debtors are a great number of unemployed or retirees. The latter being the sector that in one way, or another, relies on government handouts and assistance.

Among the unemployed and the retirees are many who have lost their jobs due to companies going bankrupt in the past decade or so, to make matters worse many had discovered upon losing their job that their employers had not been paying taxes and, therefore, the pension funds were depleted alarmingly. A recipe for poverty.

The increase in reliance on government assistance is the problem in Croatia as with all countries where unemployment tides are running higher and higher.

Ludwig von Mises, Austrian economist and philosopher who, fearing Nazi takeover, fled to New York in 1940, wrote in “Bureaucracy” (1944, 1962) that a system in which a majority of the population is dependent on the government dole leads to an unstable political and economic situation, since a majority of the population then has a vested interest in increasing the power of government to redistribute wealth. Indeed the truth in his words is visible across Europe and beyond.

In Croatia, finance minister has announced that the ministry of finance will publish the names of those who do not pay taxes on the ministry’s internet portal.

There’s talk of changing the law so that certain privacy aspects do not apply to those who do not pay their taxation dues.

Such a “name and shame” move would not be much different from the one where OECD countries are considering the lifting of privacy on offshore bank accounts used to evade taxes.

However, public humiliation, while a draconian method, may only work where taxation ethics and morality of the public are developed and operate at significant levels across the society. Whether that is the case in Croatia, a former communist country riddled with corruption on large and small scales, is a question that stares one in the face. But something needs to be done; governments need to secure revenue to sustain life and Croatia, in particular, needs to rid itself of the widespread carelessness, or lack of vigour, in pursuing those who dodge their tax dues. Ina Vukic, Prof. (Zgb); B.A., M.A.Ps. (Syd)

Comments

  1. Michael Silovic says:

    I agree that taxes need to be paid.The problem is not so much that people do not want to pay taxes as much as it is in how our goverment spends it.It seems that once goverment taxes they find a way to quickly spend or through corruption pocket uit and they constantly go up and people wind up with less for themselves and more for goverment. This is not only individuals but corporations as well. The fair way to have a a tax is called a use tax. If you buy something you are taxed on the purchase. Everyone should have a limit on personal income tax that should be set for life at a fixed percentage of thier income. Goverment should not be allowed to spend and tax anyway they want to. goverment has a way of wasting money. In america if you give it to them its never enough as they will find a way to spend it and then raise it.This is a very tough topic to discuss in such a short period of time.Our goverment needs to have a budget , stick to what it can afford and not go into debt.sadly I read an article where we were told to just print money to bolster the economy in croatia. I do not believe this is the right way to move forward. Economic development come with less taxation. Food and clothing should be tax free all other items should have a use tax and what is collected is what the goverment needs to live on as we all do with our paychecks when we work.

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    • Yes I read that article about advice that Croatia should print more money and thought the same as you. I guess taxes do need to be paid to sustain public health, roads, pension funds etc. Otherwise governments have little other ways of earning revenues since they’ve privatised a great deal of income producing plants and assets (the same pattern is all over so there are always new tricks for new taxes). The problem in Croatia has to do with the fact that under communism there wasn’t much of personal responsibility so unlike in the West there is not much of “fear” of fines and taxman knocking at the door. Also in Croatia the workforce is relatively much depleted and about the same number of people depending on government assistance including pensions. Western nations have decades ago introduced superannuation pension funds apart from “state” age pension stream so that come a few years many will have enough income from superannuation investments and not have to dip into government pension funds. Croatia has a lot of work to do that’s for sure and I think they’re trying to put in systems that may work in the future.

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  1. […] the war, and the future, looking at tax evasion, comments that as much as 45 billion Croation Kunas may be owed to the government in unpaid […]

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