Reirs to propose reducing personal income tax by about one percentage point in coming years

RIGA - In the coming years, personal income tax should be reduced by approximately one percentage point, which is what Saeima Budget and Finance Committee Chairman Janis Reirs (New Unity) is planning to put up for an upcoming discussion on tax changes in Latvia.

The former finance minister's proposal would reduce two of the three current personal income tax rates, reducing the current personal income tax rate of 23 percent to 22 percent and the 20 percent rate to 19 percent.

Reirs plans to present the proposal for a discussion, which is to start after Saeima passes the 2023 state budget bill. The tax changes will also be discussed within New Unity, said Reirs.

Reirs will insist that reducing taxes on labor force, which started three years ago, should continue. There is still a discussion to be had whether to do this by lowering social insurance contributions or by reducing personal income tax, said Reirs. He himself supports avoiding major changes but continuing evolutionary development of the tax system by adjusting taxes once every four years.

It is possible to reduce a tax rate if it is obvious that revenue from the given tax will continue to increase even after the tax rate is lower, said Reirs.

The tax-free minimum income has already been increased to EUR 500, therefore the tax-free minimum income may remain unchanged, added Reirs.

When asked about New Unity's proposal to introduce a health insurance system that would increase the funds available to healthcare, Reirs said that he currently did not know if this initiative would be discussed together with the proposed tax changes.

However, if the health insurance system was introduced several years ago by then Health Minister, now Education and Science Minister Anda Caksa (New Unity), the annual healthcare budget would have been EUR 70 million to EUR 80 million higher.

As reported, right after the 2023 budget is adopted, work on the tax policy guidelines will be started, Finance Minister Arvils Aseradens (New Unity) said in an interview with LETA earlier this month.

The government coalition partners have agreed that tax policy guidelines are being revised once in the political cycle, and if a decision on any changes is made, it is announced in a timely manner. Largest changes in taxes might be expected in 2025.