Grey economy under attack

RIGA - Talks are underway within the government to design solutions which would reduce the size of the grey economy in Latvia. Under discussion is the offering of significant perks to legally operating companies as part of this battle, as outlined by a package of measures planned by Latvia’s Finance Ministry, reports news agency LETA. Ministry State Secretary Martins Bicevskis said that a new principle will be introduced to make working within the legal economy the more lucrative option.

For example, a new ‘white list’ will be compiled, with companies on the list being granted priority for state procurements, as well as being entrusted with a lower level of state supervision. Companies which can prove that they operate legally will be eligible for inclusion on the list.

Further measures include a one-off cancellation of fines for companies who pay their basic tax debt at a set time. Fines will also be suspended for companies who restructure tax debt payments. Companies will also be given an opportunity to legalize undeclared assets by paying a special tax.

Another direction in the battle against the shadow economy will be the strengthening of supervisory authorities through the allocation of addition rights, information and funding, as well as the optimization of current functions.
The plans include raising the level of the non-taxable minimum income next year. Future tax policy measures foresee a gradual increase in the non-taxable minimum income level starting on Jan. 1, 2011, with further increases at the start of 2012 and 2013.

The ministry believes that this will make income tax more progressive, with people earning more paying more tax, and expects a corresponding decrease in the amount of salaries paid in envelopes.
At present, the non-taxable minimum is set at 35 lats (50 euros). According to the ministry, increasing this minimum by 20 lats will bring an additional 37.6 million lats into the state budget annually.
The non-taxable minimum for pensions could be set at 80 lats, instead of the current 165 lats, according to an agreement reached with international lenders. The group of lenders outlined the Protocol of Intent with the coalition parties last week, but its provisions haven’t been revealed.

Decreasing the non-taxable minimum for pensions cannot be regarded as decreasing pensions, but, instead, as applying a tax rate, therefore the Constitutional Court’s ruling calling pension reductions illegal, would not be breached.
Unofficial reports also say that next year the reduced VAT rates would be lifted for the tourism industry, printed press and pharmaceuticals.

It is planned that a package of more than 60 measures will be submitted for examination at a meeting of state secretaries on June 17.