Following the initiative of Latvia’s Chamber for Commerce and Industry, 20 private persons and 9 companies have decided to turn to the Constitutional Court of Latvia to achieve the cancellation of the solidarity tax and recover overpaid funds.
According to plaintiffs, solidarity tax contradicts previously prepared strategies stated not only in the government’s declaration, but also development documents and different regulations that were ignored by legislators. For example, social fees cap remains frozen in accordance with the Law on Budget even though the Law on State Social Insurance still provides a clear order in which it was necessary to calculate the maximum size of the fees in 2016. It should also be added that the decision regarding the introduction of the solidarity tax does not comply with the established international rules on prevention of double taxation. This only serves to hinder attraction of investments and presents Latvia as a country that is not prepared for international cooperation and a country that does not care much for its own image.
LCCI had previously stated that this new tax would take away Latvia’s competitiveness in regards to attractive wages in the Baltic region. «If Latvia wishes to introduce a solidarity tax and thereby put a bigger burden on wage recipients, it should look at Lithuania. This country has made a decision that is completely opposite to what Latvia wishes to accomplish – establish a cap on social insurance fees for large salaries and there by motivate companies to come to country and vary the level of welfare for all residents,» – says LCCI Chairman Janis Endzins. ‘Taking that into account, it can concluded that the advice of the World Bank worth 300,000 to increase PIT to 29% will lead to a situation when wages in Lithuania that exceed a specific level will pay PIT of 15% and wages in Latvia will pay PIT of 63.09%. By making such near-sighted decisions, we will become unable to compete on not only Baltic, but also European level.’
LCCI points to the fact that Latvia has a deficit of people with large income who pay more taxes and thereby increase the country’s general level of welfare. «People who earn more money also usually spend more money and thereby stimulate the country’s economy and wage rise. We should strive to create more recipients of large salaries,» – says Endzins.
Although former Finance Minister Janis Reirs justified the need for solidarity tax with the intention to reduce inequality, it is worth keeping in mind that recipients of large wages also pay the largest taxes, this is why it would be near-sighted to put extra burden and do it in a way that prevents the person in question to receive services, including pension saving. «If the country’s goal was to prevent regressivity of taxes, it can be accomplished by cancelling the cap on social insurance fees. The largest portion of state social insurance goes to pension savings, and 2nd pension level can be managed by residents. Payers of solidarity tax do not have this option,» – said Endzins. One other unpleasant surprise is that the annotation of the law does not provide estimates of costs for state and municipal employers. This means the new tax will have to be reflected in budget income and expenditures. Otherwise the much-expected positive effect on the budget and social welfare will be exceeded, as stated by LCCI.