Taxing tradition in Istria, Croatia

Robin Smith

On its face, taxation is not the most alluring subject for those of us studying rural farming communities. However, taxation touches much of what we care about in these spaces. Taxation fundamentally shapes the economic structure of rural areas, influencing the viability of family businesses and the ability of rural entrepreneurs to establish themselves in the formal economy. Taxes can make and unmake markets, sometimes in dramatic fashion.

Istria
I arrived in Istria, Croatia, in 2012 as a doctoral student in anthropology seeking to understand this winemaking region’s contemporary political economy. While my focus turned to informal debt and credit relations, in my second year, a tax reform sent shockwaves through the small business sector nationwide. In preparation to join the EU, in early 2013, the government had adopted an electronic tax payment system, one that vexed small family business owners who had neither the technological knowledge to use it nor spare cash to invest in its adoption. In some instances, it was impossible to implement because of the lack of internet availability — yet people were fined for non-compliance all spring and summer in what locals interpreted as grandstanding by the state to demonstrate its readiness to join the West. That it collected tax before businesses were actually paid for their products infuriated small business owners, who believed that this signified the state’s predatory nature, that it only cared that it was paid, not that they were. The vitriol circulating in cafés and in newspapers that year was deafening, and all because of tax…

Tax and regionalis
Taxes have long been a political flashpoint in Istria. A friend had grumbled once, citing numbers of unknown provenance, that in Yugoslavia, ‘Eighty percent of Istria’s revenues were used for local development. Today only eight percent stays; the rest goes to Zagreb’ — I had heard the same assertion often, each time citing different numbers.” People often expressed their dislike for the Croatian government by enumerating the ways it marginalized them. One of the many frustrations was the feeling that local wealth was extracted through taxes to be reallocated to other Croatian regions. Indeed, Istria’s tourism and wine markets were the reason why the region contributed the second largest amount of tax revenue by region after the capital to the national coffers. This lament was often accompanied by the observation that, all the while, Istrians were inculpated as not really Croatian because of the region’s history as part of Italy prior to WWII, and thus culturally dangerous to the fragile constitution of the new Croatian nation. The strained relationship between center and periphery was fueled by tax.

Rising bureaucratization
So, I took notes when tax came up in conversations with winemakers, and it arose in myriad contexts. Years into living there, a winemaker named Diego mentioned off-hand that tax was why his family no longer distilled trapa, a spirit alcohol that is similar to grappa in all ways but name and nation. My attention sharpened, and I asked for elaboration. I learned that in the 1990s and the early 2000s, the tax regime became so burdensome and punitive that many farming families were forced to make a choice between four avenues: deregister and continue distilling for their own consumption — up to 200 liters per person per year — which would cover enough to continue the tradition of gifting trapa on holidays and offering it to dinner guests, attempt to become formal commercial producers of spirits by establishing craft distilleries, abandon the tradition entirely, or continue distilling as always but move into the informal economy, away from the watchful eyes of the state.

Diego explained that the winemaking families in that era who were already interested in professionalizing their winemaking craft to build livelihoods mostly chose the second option, abandonment. Winemaking was similarly the new target of regulations, but not nearly as intensive because of its lower alcohol percentage. There was a larger market for it, too, made that much bigger by the crumbling of Yugoslav-era socially-owned wineries, leaving the market thirsty for wine. But the biggest issue was risk. Regulations were changing all the time, and they could not keep up with it all, so they risked being visited and fined for infractions that they were unaware of. Indeed, this is what happened to his family in 1998: they failed to report their still volumes two months in a row, but they had decided to do so because they simply had not sold any alcohol, so they did not feel they had anything to report (e.g., income from sales). Little did they know that they were required to report their volumes anyway. So, when inspectors visited them, they were fined 4,000 euros, a substantial sum at the time, and zeroing out much of the profit they had hoped to earn from its sale. As Diego’s wife Dora reflected, ‘It was too risky once the taxes started. It scared people away. Many decided it was safer to focus on winemaking. It’s a shame, a real loss for everyone that so much good trapa disappeared from the market. This is a tax on our tradition. Something we all do — or once did’.

A sea of moonshine
Even though their family decided to turn away from distilling, many more families decided that informality was easier. Strict rules around inspectors’ authority to visit private property without cause provided a formidable shield. As long as no one snitched, families were relatively confident that they could distill as much trapa as they wanted behind closed doors. Soon, a thriving moonshine market emerged. There are no official estimates of how much moonshine circulates in Croatia, but in my efforts to track down a Croatian economist who might have a better sense of it so I could present some figures in a chapter on this topic (see Smith 2024), I found one who, after verifying the lack of data, simply wrote that speaking for himself, ‘I have never bought it outside the informal market, and I guess that holds for many in this country, or at least this is my impression’. So. The tax regime that emerged around spirits had the unintended consequence of intimidating families from staying in or joining the formal economy. And now, decades later, instead of a vibrant spirits sector that could rival Istria’s now thriving wine market, craft distilling is a footnote. A new generation is attempting to forge a profile of craft distilling now, but they are far outshined by the very established corporate distilleries that define much of the spirits sector.

Concluding remarks
Istrians are hardly anti-tax Libertarians. They pay myriad taxes — begrudgingly like most of us, but they pay nonetheless. However, the story of regulating Istrian distilling illustrates some of the unintended consequences of regulatory regimes. It is a cautionary tale that should give us pause when considering the well-meaning, well-thought-out policy changes that seek to change the landscape of rural production traditions. It begs the question of what values and priorities legal regimes touch as they seek to bring about the common good. Regulating spirits is, of course, a necessary practice for public health and safety, and yet the problem of rural alcoholism fueled by cheap local spirits remains a horrible problem across Croatia. How do we navigate such thorny issues, and how can rural sociology research be a resource for identifying solutions in such specific local contexts?

Dr. Robin Smith is an anthropologist and Research Fellow at Copenhagen Business School on a project, AnthroTax (funded by the European Union’s Horizon 2020 Research and Innovation Program under the Marie Skłodowska-Curie grant agreement no. 101026736). She has been visiting and writing about Istria since 2005. You can read more about her work here: www.robin-anthro.com or visit the Anthropology of Tax Network website to discover more research ongoing in the field here: www.tax-anthro.net

Robin lectured in RSO31806 Sociology of Food and Place. She will give a presentation to the Public Administration and Policy Group on 18 June 2024. It will go into more detail on the Istrian distilling sector and how tax shaped it, and is based on an upcoming publication:

Smith, Robin. 2024. The persistence of kindred spirits: Tax and values in Istrian distilling. In Mugler, J., Sheild Johansson, M., & R. Smith, Anthropology & tax: Ethnographies of fiscal relations, Cambridge: Cambridge University Press, pp. 113-135.