The Latvian government on Oct. 29 it approved amendments to the Micro-enterprise Tax Law that envisage gradually increasing the micro-enterprise tax rate to 15 percent in 2017, reports LETA.
The tax rate for micro-enterprises with annual turnover under 7,000 euros will remain at 9 percent. The tax rate for micro-enterprises with higher turnover will be increased to 11 percent in 2015, 13 percent in 2016 and 15 percent in 2017.
Currently, micro-enterprises are applied with a 9 percent tax rate regardless of their annual turnover amounts.
According to the Welfare Ministry, the number of entities that pay micro-enterprise tax has increased more than fourfold since 2011. At the beginning of 2013, 55,454 people were employed at micro-enterprises, which is 13.3 times more than in the fourth quarter of 2010.
Economy Minister Daniels Pavluts asked at a government meeting on Oct. 29 that his individual opinion be added to the government meeting’s minutes.
Pavluts believes that, given the dynamics of micro-enterprise development, the introduction of the micro-enterprise tax option has contributed to higher economic activity and creation of new enterprises, thereby easing the pressure on the social budget.
It is obvious that micro-enterprises which are established now are in the initial stages of their development, and increasing the tax rate on all micro-enterprises may pose significant risk of expanding the shadow economy and unemployment, as well as prompt micro-enterprises to try to conceal their actual incomes by paying wages under the table.
Pavluts believes that keeping the current micro-enterprise tax of 9 percent only for enterprises with annual turnover of up to 7,000 euros, while all other micro-enterprises will have to pay a higher tax, will create a disproportionate tax burden for start-ups.
The minister proposes that micro-enterprise tax be increased not to 15 percent, but to 12 percent.
In the meantime, the Latvian Chamber of Commerce and Industry (LCCI) has launched a signature drive, protesting MP Elina Silina’s initiative to raise the tax rate to 15 percent, as the LCCI board chairman Janis Endzins urged previously. He said it was completely incomprehensible why Saeima members wanted to destroy a support program that was working flawlessly in just three years after the launch of the program.
“The current micro-enterprise tax system is comparable to children and youth sports schools - if youth sports were liquidated, it would be hopeless to hope for improvements in public health and noteworthy achievements in professional sports. If the tax on small business is raised rashly, there will be no Latvian ‘Skype’ and no increase in the number of medium-sized and large taxpayers,” said Endzins.
LCCI believes that changes to the micro-enterprise tax rate should be meant to encourage the creation of more micro-enterprises and growth thereof.
“If the companies’ turnover increases and the maximum number of employees per micro-enterprise is raised from five to nine and the ceiling on employees’ salaries is increased - like this has been done elsewhere in the European Union - then it would be possible to gradually increase the micro-enterprise tax rate, so a growing micro-enterprise could, once it starts to pay the general labor taxes, be healthy and viable,” emphasized Endzins.