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NP: Reizniece-Ozola and Kučinskis are proud of tax reform, businessmen are not

Photo: pixabay.com.
Latvia’s tax system underwent serious reforms before the country entered 2018. Until now officials only mentioned the benefits – businessmen will no longer have to pay tax for profits if they reinvest money in business development, the majority of small wage recipients will become several dozen euros richer. However, businessmen are generally dissatisfied with the reform, Nekā personīga reports.

Finance Minister Dana Reizniece-Ozola and Prime Minister Māris Kučinskis are proud of the reform. Businessmen, on the other hand, are less than dissatisfied. The main promise – reducing labour force costs – has yet to be completed, whereas the price for it – increased taxes – remains in force, the programme mentioned.

Journalists also mention that there are certain difficulties expected for a large number of employed people. The number of people that will have to declare their income to State Revenue Service will soon increase significantly.

The programme included footage from Kučinskis’ New Year’s speech, in which he mentioned: «A new tax system will be adopted in Latvia tomorrow. There were doubts at the beginning of the year on whether or not this is even possible to do. Now it is done. The tax reform has to vital goals in store for Latvia – reducing inequality and improving growth of the national economy.»

Nekā personīga adds: «The tax reform is one of the pillars that will be used as foundation for the election campaign of the Union of Greens and Farmers in elections expected in autumn. Other parties are proud of it as well. Politicians consider it an act of heroism.»

It was also mentioned by the programme that the tasks of the reform are considerable. It has to attract people working in the grey sector, as well as enhance businessmen’s positions so that they are able to pay taxes once European money is no more in 2020. The first news about major initiatives was very promising.

At the beginning of the year, Finance Ministry promised something of a tax revolution. Cardinal changes would serve as doping for business, reducing income inequality and actively ruin the grey economy.

Talks organized with Finance Ministry, employers and trade unions resulted in an agreement to no longer apply taxes on reinvested profits, reduce PIT to 20%, establish non-taxable minimum at EUR 300 for wages under EUR 1,350. The business sector would pay for such ‘benefits’ with an increase of corporate income tax from 15% to 20%, doubled rate for dividends from 10% to 20%, as well as larger wages for employees. To make sure the budget does not suffer, it is also planned to increase excise tax on fuel from 8% to 12%.

Latvian Chamber for Commerce and Industry council member Lienīte Caune told the programme: «All sides – the government, finance ministry, and employers – set out with a single goal in mind. We are aware of the problems with grey economy. We have to act to reduce the grey economy.»

Journalists mentioned that the initial proposal included a promise to reduce tension as to when wages should be increased. There was hope that efforts would result in a major decline for the number of tax avoiders.

Caune said: «It is either a dream or reality. It is hard to imagine how it can be realized. It was beautiful all the way until August. Later on, however, we were told that a progressive tax would be introduced.»

At the same time, Caune notes: «We’ve been had. What we as employers feel is a wage block that is unacceptable, like it was adopted and then changed somehow.»

The programme reports that municipalities have certain problems with the reform. One of the first to protest was Aivars Lembergs’ own Ventspils City Council. This tax is the main source of income for municipalities. The local governments are not ready to reduce their expenditures. The government backed off and therefore municipalities will not experience losses. Municipalities were guaranteed 19.6% of budget revenue in the next three years. State budget will provide grants to make sure municipalities do not suffer PIT decline by 3%, Nekā personīga explains.

Gints Kaminskis, chairman of Latvian Local Governments Union, told the programme: «I think it is only natural that the first reaction to any initiative to reduce funding is protest. But I would like to say once more that it was a constructive talk to help find a compromise.»

Municipalities were not the only ones not ready for income decline. The government also failed to find finances for healthcare. This resulted in a breach of the promise given to employers and an increase of social fees, the programme adds.

Journalists mention that the government has yet to accomplish much in regards to reducing income inequality. By introducing a progressive income tax, the government agitated businessmen. Nevertheless, experts believe that although a step has been made in the right direction, it is insignificant. Only a small portion of the population pays larger taxes, whereas taxes for small wage recipients remain too high.

Baltic International Centre For Economic Policy Studies (BICEPS) researcher Anna Pļuta told Nekā personīga: «Once this reform is done, the tax burden for small wage recipients will remain relatively high when compared with other OECD member states. A more focused reform aimed at reducing labour force tax burden for small wage recipients would be much better.»

The tax reform promises a big increase of clients for the State Revenue Service’s Customer Service Offices at the beginning of 2019. Different tax rates for residents and a progressive non-taxable minimum for wages under one thousand euros will make it mandatory for a large number of people to submit annual income declaration. This will have to be done to make it clear who owes who – the state to the person or the person to the state.

SRS Tax Office’s personal income department’s first methodic office manager Inese Kemzāne notes: «This range will expand further. Until now those people included businessmen with income earned abroad or non-taxable minimum that exceeds four thousand. Amendments to the law will make it a duty for others.»

Still, experts are certain that what is left from the original tax reform will still benefit the economy. Small wage recipients will get their money and spend it in Latvia. In time, reinvested profits will make businesses stronger.


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