VAT reduction bill moves forward

  • 2010-03-10
  • From wire reports

RIGA - The People’s Party succeeded on March 9, with the help of the opposition, in gaining at least theoretical support from Saeima’s Budget and Finance (Taxation) Committee for forwarding their amendment to the law ‘On Value Added Tax’ for review in the full Saeima, reports news agency LETA. The amendment foresees the introduction of a reduced VAT rate for the tourism sector.

At the meeting, Committee Chairman Guntis Berzins (New Era) called for review of the issue to be suspended for two weeks; however, this proposal was voted down by the People’s Party and the opposition. The authors of the amendments propose a reduction of VAT to 10 percent for hotels, motels, guesthouses and other tourist accommodation. At present, VAT in the tourism sector is 21 percent.

The changes are being proposed in order to increase the international competitiveness of Latvian companies working in the tourism sector, as well as to stimulate development of the sector in Latvia. A lower VAT rate would allow reduction of prices for tourist accommodation, which in turn would stimulate an increase in exports, claim the group behind the proposals.
Prime Minister Valdis Dombrovskis (New Era) is not against the possibility of reducing the VAT rates for tourism; however, the defining factor, he believes, has to be the analysis on the positive or negative effects on the budget. As the premier said following an earlier meeting with tourism industry representatives, at present he is only in possession of the Finance Ministry’s calculations of the negative aspects of a VAT reduction.

Tourism industry representatives prepared estimates of how the reduced tax rate could be a factor in the creation of new jobs, with a corresponding increase in budget revenue, estimates used by the People’s Party to push through their agenda.
The Latvian rural tourism association ‘Lauku celotajs’ president, Asnate Ziemele, has indicated that with the sector losing its competitiveness compared with other countries, a tax reduction would provide significant backing for the industry.