Government supports VAT and income tax reductions

RIGA – On May 15, the government agreed that the value added tax (VAT) rate would be reduced from the current 22 percent to 21 percentstarting July 1 this year, whereas personal income tax will be reduced by 5percent in the next three years, from the current 25 to 20 percent.

The final decision will be up to Saeima.

According to the Finance Ministry's calculations, reducing personal income tax by 1 percent in 2013 will leave the budget with 33.2 million lats (47.2 million euros) less in revenue.

On the other hand, the reduction of the VAT rate from 22 to 21 percent this year will leave the budget with 16.5 million lats less in revenue this year, and 40.5 million lats less in revenue in 2013.

As reported, the Finance Ministry proposes reducing the VAT rate already on July 1 this year, and the personal income tax rate - from January 1, 2013. The VAT rate could be reduced from 22 to 21 percent in mid-2012, on condition that businessmen will agree to reflect these changes in their prices.

Personal income tax rate could be reduced from 25 to 24 percent on January 1, 2013. The following few years could bring an even steeper reduction - by 2 percent, reducing the personal income tax rate to 20 percent within three years.

It is also planned that the monthly untaxed minimum will be raised from 45 to 60lats already next year.