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Tuesday 24.10.2017 | Name days: Renāte, Modrīte, Mudrīte

Economic Diary: “Fat tax” to enrich the state treasury?

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUThe closer the beginning of the planning of the state budget, the more interesting things happen. It seems that the ministries have decided to approach the issue of increasing the money flow to the state treasury rather creatively. However, the abilities that will allow the government to implement its initiatives remain rather modest.

Everyone is offered to lose weight

For example, the Healthcare Ministry proposes introducing an excise tax on unhealthy food products. The products that are proposed to be put under fiscal watch are the ones that include trans fats (palm oil and margarine).

The proposals were submitted to the Finance Ministry this week. The ministry also offers to increase the existing excise taxes on non-alcoholic drinks containing sweeteners and flavourings, alcoholic drinks, tobacco products and gambling.

The Latvian Food Traders Association has negatively reacted to such proposals. According to representatives of the association believe such proposals will not only make food products more expensive, but also reduce the competitiveness of domestic manufacturers and cause millions of losses to the industry: “It was already said that increasing taxes to cover the gaps in budget is not an effective solution in a long-term perspective. It only leads to new problems.”

The first tax on fatty food was adopted in Denmark in 2011. The tax applied to foods with fat saturation above 2.3%. This increased the state budget revenue by EUR 170 million. This, however,had no impact on the overall consumers’ habits, but impacted the national industry. People started buying products in bulk in Germany instead. It was decided to cancel the “fat tax” in 2012.

Desire not correspond to abilities

Aside from the aforementioned tax, the ministries are considering the idea of additional taxing of Latvian ports. It is still unclear, however, how this idea will be formulated. It is possible that details will be voiced next week. The full list of institutions’ wishes is long (245) and could cost the budget more than LVL 500 million.

The recent assessment of the ministries’ requests regarding their compliance to the National Development Plan make things even more complicated. Because of the flwas of the algorithm, ideas like “mechanization of infantry brigade” and “patriotic education of youth” received the most support, while the initiative to create a state shares management bureau was left on the 39th spot on the list. PM Valdis Dombrovskis admitted the flaws of the system.

Government to buy out arable land

The government is not strictly focused on additional revenue. The Cabinet of Ministers Committee has recently reviewed a law that has been in production for five years the Land Management Law. This law is called to regulate the order of land management and its rational use for farms with domestic owners. The government plans to offer support through the Latvian Land Fund. A surface estimate suggests this fund will manage assets worth hundreds of million EUR.

The fund is currently a mediator-guarantee in the programme for crediting the purchase of large areas. At the same time, the term of the continuously renewed land reform will end along with the adoption of the law. This institution will become a buyer in its own right. It will then be able to re-sell or lease territories it owns.

If the Saeima approves this initiative, the state will begin active procurement of arable land in 2014 using the Latvian Land Fund. The property will then be sold to or rented out to domestic farmers. It is also planned to come up with arable land evaluation criteria.

About euro transition

Many entrepreneurs are preparing for the upcoming euro transition in Latvia. According to Swedbank’s recent survey, only 3% of entrepreneurs are doing nothing. This figure was 10% this March.

More than half of all respondents are carrying out changes in their accounting system. Many entrepreneurs are also preparing to have prices simultaneously listed in euro and lat. More than 500 companies participated in the survey. Three-fourths of its respondents believe one of the most important steps is the adoption of non-cash payment methods. 42% of respondents admit they plan to encourage their clients to use this method.

Swedbank Board member Daniil Rulev said that increased activity in regard to the adoption of non-cash transactions shows active work in introducing new electronic systems.


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