Tax hike under fire

RIGA - By hiking up the annual motor vehicle tax, “the government and legislators blatantly deride the remaining honest companies that continue to pay taxes,” Andris Kulbergs, president of the Latvian Authorized Automobile Dealers’ Association, said, reports Nozare.lv. The association, on behalf of the association’s members and other car dealers and “honest taxpayers,” categorically objects to the planned increase in the annual motor vehicle tax suggested by the Finance Ministry, as well as to the planned tenfold increase in the tax on official vehicles, which is expected to bring in an additional 25 million lats (35.7 million euros) to the state budget.

The Authorized Automobile Dealers’ Association believes that this is “near-sighted, irresponsible and useless tax policy that, judging from past experience, will not only fail to achieve planned results but actually achieve the opposite.”
According to the association’s calculations, dishonest companies in the automobile service sector alone evade paying at least 20 million lats in taxes each year, and in the entire automobile sector, more than 80 million lats a year.

“We, the companies that pay taxes, consider it unacceptable that the new budget consolidation plan aims to collect just an additional 6 million lats through combating the shadow economy, and at the same time hike the taxes tenfold for those who still continue to pay taxes,” said Kulbergs, noting that the Finance Ministry would eventually create such a situation where no one would pay taxes, as well as stop foreign investors from coming to Latvia.

The association also emphasizes that the tax burden on motor vehicles in Latvia is the highest in the Baltic countries. “Already now, when someone buys a new car in Latvia, he has to pay, in various taxes and duties, sixteen times as much as in Lithuania and four times as much as in Estonia. There is no motor vehicle tax in the other two Baltic countries, however, their roads are of much better quality,” said Kulbergs.

He said that if the tax was increased, people would look for ways to evade it altogether. If Latvian residents eventually choose to buy cars in other countries, the Latvian budget will lose 1,500  to 1,700 lats on each such car. This would also pose a threat to the existence of car dealerships, he added.

In order to increase national budget revenue by 5 million lats next year, on Nov. 23 the government approved increasing the motor vehicle tax, which will primarily be targeted at exclusive cars and cars with large engines, said Transportation Minister Uldis Augulis (Union of Greens and Farmers). According to the minister, the necessary estimates were yet to be calculated, with the precise changes in the tax to be made public later.

Vehicle tax for small and medium-sized compact cars registered after 2005 will even decrease slightly, whereas the tax on exclusive cars and cars with large engines will increase significantly. For instance, the tax on an exclusive Mercedes Benz could increase from the current 115 lats to 260 lats.
Furthermore, the tax will also increase for cars that were registered in Latvia before 2005. The increase could be around 7-8 percent for small and medium-sized compact cars, and higher for cars with larger engines.