Compliance Costs of Taxation in a Transition Country : The Example of Croatia

The paper presents the results of several partial but connected research into tax compliance costs in Croatia. This is one of the first measurements of these costs in a country in transition. In our research, tax compliance costs involve labor costs, external costs, but also some other internal non-labor costs. The concept of costs was mostly concentrated on “gross” or “social” costs of tax compliance. The technique of the face-to-face interviews was mostly used. Some methodological innovations were introduced. Compliance costs of taxation amount to 2.66% of GDP. VAT is in the first place (0.81% of GDP). Individual income tax of the self-employed turned out to be the most inefficient tax with a share of 98% in relevant tax revenues. As expected, the research also proved the regressivity of tax compliance costs, even comparing the smallest businesses. Numerous policy recommendations have resulted from the survey, the most important being the replacement of the self-assessment of individual income tax for small businesses (the self-employed) by a lump-sum tax (in the meantime already realized in Croatia), the simplification of VAT compliance for small businesses (self-employed) with a longer reporting period or an increase of the VAT threshold as well as abolition of parallel records and a reduction in the number of forms