New tax legislation hits Croatian NGO’s hard

According to the instruction Ministry of Finances gave on May 17th, non-governmental organisations in Croatia are forced to pay value added tax (VAT, 22%) on donations they receive from abroad, as well as for the purchase of all things funded from foreign donations. Unlike humanitarian organisations, NGO´s no longer have the right to exempt from VAT. The official justification of this act came as a «decrease of manipulation and more effective control» (Croatian Parliament Report, nr. 389, year XV) of those who receive foreign donations, as well as narrowing the circle of potential donation receivers among civil society, due to legal difficulties occured in implementation of the law on VAT. One way or another, from this point on NGO´s will have to face a hard financial reality. For almost two months now, activists have struggled for survival, wondering whether to be or not to be.

Against short-term solutions

Awared of their unenvious position, NGO´s response came through initiative and petition against this decision, signed by 160 organisations so far. During the meeting with NGO representatives, Ministry of Finances suggested the possibility of setting some 50 NGO´s in Croatia free of tax, as a temporary solution. The offer was refused not  only because of its partiality – there are almost 25.000 different NGO´s registered in Croatia – but also because the NGO´s insisted on a long-term approach to this particular problem finding it to be one of the most important issues of civil society.
– We suggested long-term legal solutions, but the government simply showed no sensitivity for our problems, said Suzana Jašiæ, the president of Citizens Organized to Monitor Elections (GONG).

Are NGO´s Public Benefit Organisations?

Although some recent arguments coming from the NGO´s pointed to the confirmed European legal practice of treating tax privileged beneficiaries as Public Benefit Organizations, the government still remained undisturbed as to its original position of more efficient control over non-governmental and non-profitable organisations.This means that NGO´s in Croatia are not perceived as the organisations contributing to the public benefit, but rather as the organisations taking from the same on.

A future for NGO´s?

Being one of the highest in Europe, the Croatian VAT rate of 22% (pdv) will force some organisations to think twice of their near future. The consequences are immeasurable. First of all, the annual tax rate for some NGO´s will now go beyond budget expenses for three year projects. The high VAT rate will also, most probably, put off potential donors from Europe, limiting NGO´s funding to a few domestic financial sources interested in civil society. Due to the same financial reasons, some of the planned activities have already been cancelled. How many of these must be cancelled in order to prove the unbearebleness of this situation? Hopefully, not too many.