Latvia’s high tax regime to continue

RIGA - Latvia’s Finance Ministry has drafted its tax policy strategy for 2011-2014, where it suggests maintaining the same tax rates as this year and advises against introducing new taxes, reports news agency LETA. The ministry proposes maintaining the 15 percent corporate income tax and the same number of tax breaks, Finance Minister Andris Vilks (Unity) said on July 6.
Revenue from residential income tax is to remain at the level of 2012, however, if the projected figure is exceeded, the tax burden for residents with the lowest income will be proportionally reduced.

The ministry also proposes not to increase mandatory state social insurance installments, and maintain the value added tax rate at 22 percent. Excise tax on oil products and alcohol will also remain unchanged. However, excise tax on tobacco will be gradually raised until it reaches the minimum level of the European Union in 2018.
The ministry emphasizes that tax policy in Latvia has experienced considerable change during the past three years, and its unpredictability has hampered development of business activity.

The new president of Latvia, Andris Berzins, said in an interview with the business daily Dienas Bizness that when drafting the 2012 budget, it is necessary to assess the current taxes and find an opportunity to reduce them. The president also predicts that residential income tax could be reduced already next year.

“I believe that residential income tax is the first in line. The shadow economy can only be reduced by actual measures and not by forced methods, hoping that there will be someone who will pay more. There will be tax reductions,” said Berzins.
The president added that he is concerned about the government’s promise that 90 percent of the projected consolidation will be in the reduction of expenditures, and only the remaining 10 percent will be achieved from tax changes. “The ruling coalition promised that there will be no additional tax hikes. If the political situation changes, then the promise will obviously not hold,” said Berzins.