VAT reduction will decrease inflation by 0.5% - Vilks

  • 2012-05-02

RIGA - One-percent value added tax [VAT] rate reductions usually reduce inflation by 0.8 percent, however, in Latvia's case, inflation could decrease by 0.5 percent, Finance Minister Andris Vilks (Unity) said in an interview with the newspaper Telegraf.

As reported, the Finance Ministry proposes reducing the VAT rate from 22 to 21 percent as of July 1 this year, and the personal income tax rate - from 25 to 24 percent as of January 1, 2013.

Vilks admits that the VAT rate cannot stay at 22 percent in Latvia, since it is currently at 21 and 20 percent in Lithuania and Estonia respectively, The minister believes that Latvia could also cut its reduced value added tax rate, which is currently at 12 percent, compared to 5 and 9 percent in Lithuania and Estonia.

Vilks emphasizes that labor tax cuts are of the utmost importance. The concept envisages that the personal income tax rate will be reduced to 20 percent within three years, the lowest rate in Latvia's history.