The aim of the project was to investigate the fiscal system and to give an indication of the direction in which it should be supplemented and improved at the time of the introduction of value added tax.
The results of the research project indicated that the size of the revenue would depend on the quality of preparation of both the taxpayers and the tax administration. In this respect, significant problems in the introduction of VAT are to be expected. The problems will result from the position of sectors, services and goods, the types of taxpayers, beneficiaries of tax exemptions or zero tax rates being imprecisely defined and other weaknesses in the VAT Act (these have been dealt with in more detail in the project). Therefore, the period until 1 January 1997 (date of the introduction of VAT) must be used to eliminate all ambiguities and imprecisions which exist in the VAT Act.
The main messages of the research project were:
- Unequivocal support should be given to the introduction of VAT with a single tax rate and the smallest possible number of exemptions;
- The regressive features of VAT should be treated by direct social transfers;
- Long-term analysis of the distribution of the income tax burden is required;
- Both the taxpayers and the tax administration need to be fully prepared before the introduction of VAT;
- Since VAT is expected to lead to lower tax revenue than Turnover tax, it is necessary to secure alternative sources of tax revenue;
- The tax administration should carefully monitor price changes to prevent the increase of profit margins at the expense of tax rate changes;
- Urgent and appropriate attention should be given to those clauses in the VAT Act relevant to the most important sectors, goods and services, tax exemptions and taxpayers facing zero VAT rates. Every important detail required for VAT implementation should be clearly defined before the actual start of VAT, even at the expense of a delay in its application.
Also, the goal of the project was to unite and educate a critical mass of young people – both in the Institute of Public Finance, as well as in the Ministry of Finance and related institutions – about value added tax as a new form in Croatian tax practice.