RIGA - The Latvian government, acknowledging that high taxes are having a stifling effect on the country’s economy, on May 15 agreed that the value added tax (VAT) rate would be reduced one percentage point on July 1 this year, dropping it from the current 22 percent to 21 percent, whereas the personal income tax will be reduced five percentage points over the next three years, from the current 25 percent to 20 percent, reports Nozare.lv.
The final decision will be up to the Saeima.
The Finance Ministry calculates that reducing personal income tax by one percentage point in 2013 will leave the budget with 33.2 million lats (47.4 million euros) less in revenue.
However, the reduction of the VAT rate from 22 to 21 percent will leave the budget with 16.5 million lats less in revenue this year, and 40.5 million lats less in revenue in 2013.
Though not substantial amounts, it does mean there’s more money in people’s pockets.
The Finance Ministry proposes, therefore, to reduce the VAT rate on July 1 this year, and the personal income tax rate from Jan. 1, 2013. The VAT rate would be reduced from 22 to 21 percent in mid-2012, on condition that business will agree to reflect these changes in their prices.
The personal income tax rate could be reduced from 25 to 24 percent on Jan. 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 wage will be raised from 45 lats to 60 lats already next year.