The basic goal of this research was to establish the effect of raising the threshold for entry into the VAT system on:
- state budget revenues from VAT,
- the work of the Tax Administration and VAT payers’ compliance costs,
- the number of taxpayers.
The first research was conducted in 2007 and was updated in 2009. The new data did not alter the conclusion significantly. In the process of aligning the Croatian VAT system with Directive 2006/112/EC, which is nowadays the fundamental document for harmonizing VAT systems in the European Union, Croatia will need to re-examine the threshold for entry into the VAT system. The current threshold of HRK 85,000, or 11,675 EUR, is higher than the one prescribed by the Directive. That is to say, although in principle the Directive sets the threshold to 5,000 EUR, it also makes it possible, under certain circumstances, to set a higher threshold, which may also be seen in some member countries.
Setting a suitable threshold requires an analysis of costs and benefits stemming from the possible change. The threshold in Croatia, in comparison with other countries, is relatively low and it could be suggested that it be raised since an excessively low limit increases the costs of collecting taxes both for the tax administration and the taxpayer, and the fiscal effects are not significant.