RIGA - The Finance Ministry proposes reforming Latvia's tax system in three stages, introducing in the first stage a mandatory 5 percent health insurance payment without increasing the overall labor tax burden but instead redistributing the rates of state social security contributions, personal income tax and solidarity tax, LETA was told at the ministry.
The new tax proposals have been outlined in the Finance Ministry's informative report to the government.
To solve the problems concerning employed persons' insufficient social and health insurance, the Finance Ministry proposes tax reforms that would be phased in, starting from next year.
The first stage of the reform, which would come into effect in 2021, provides for introducing the mandatory 5 percent health insurance payment without increasing the overall labor tax burden but redistributing the rates of state social security contributions, personal income tax and solidarity tax.
To prevent the tax burden on low and medium-income persons from growing as a result of the redistribution of tax rates, the differentiated nontaxable minimum income would be raised from EUR 300 to EUR 350 per month. It is also planned to introduce minimum state social security contributions for employees whose monthly income is below the minimum wage, as well as to reform the tax regime for micro-enterprises.
The second stage of the reform, which would come into effect from 2022, would affect business operators working in the general tax regime. Under the new rules, state social security contributions will be charged on all operating income from those business operators whose annual operating income exceeds EUR 20,004 (EUR 1,667 per month).
In the third stage of the reform, which would come into effect from 2023, state social security contributions would be charged on all actual income on all levels of operating income, but no less than the minimum amount of state social security contributions.
"The Covid-19 crisis showed very clearly that there are many people in our country for whom not even the minimal social security contributions are being made. This leaves them without social security - sickness benefits, old age pensions and crisis benefits. Tax improvements have to be made, focusing as much as possible on making the tax system fairer, and it is also necessary to ensure social security for those working in alternative tax regimes," said Finance Minister Janis Reirs (New Unity).