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Wednesday 23.08.2017 | Name days: Valgudis, Ralfs, Vitālijs

Economic Diary of Latvia. Big games over a small tax

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUThere is room for miracles in life, especially right before Easter. It became known this week that once the most problematic bank in Latvia has become a successful enterprise.

Citadele Group concluded 2014 with a record profit index – EUR 32.4 million, which is 138% more than the year before. Citadele earned EUR 29.2 million last year, which is 91% more than the year before.

«In 2014, Citadele achieved the best result since the launch of business activity. In these four years the bank has transformed from a failing company into one of the most successful banks in Latvia, active creditor of the country’s national economy, stable employer and large taxpayer,» – says Citadele Council Chairperson Klavs Vasks.

Good financial indexes may become a reason for the review of the final sale price of this credit institution, as previously reported by the representative of the Privatisation Agency Guntis Karklins.

As previously reported, the deal for the sale of 75% of shares in Citadele bank owned by the state to American Ripplewood investment fund for EUR 74 million was signed on November 5th, 2014. Now this deal is close to its completion, so it is time to sort things out. The Finance Capital and Market Commission has sent a decision-making project to the European Central Bank. Citadele has subsidiaries in Lithuania and Switzerland. This is why it is necessary to obtain permission from authorities in these countries.

Big games over a small tax

Things are not going as well for parliamentarians who have failed to complete amendments to the Law on Micro-enterprise Tax this week. Members of the Budget-Finance Committee originally planned to tackle this matter on a meeting this Wednesday in order to complete everything prior to the break between parliamentary sessions. Unfortunately, deputies failed to reach an agreement on many important points. With that, the continuation of debates is planned for April 9th.

The final draft of amendments provides for maintaining the 9% tax rate only for the first three years of economic activity. It is also planned to set specific industries in which entrepreneurs will be allowed to receive the status of micro-tax payers. Finally, it is planned to gradually increase the level of compulsory social insurance fees in order for them to reach the average across the country – EUR 122.

In order to maintain the tax rate at the present level, EUR 7 million is required. The government has allocated this amount under the condition that all of the aforementioned norms will be reflected in the new redaction of the legislative regulation.

This relieved tax regime can be considered the most successful one, considering its popularity among the populace and enterprises. According to information from the State Revenue Service and Enterprises Register, the status of micro-tax payer has been provided to a total of 57,106 private and legal persons since September 2010. More than 100,000 people or 10% of all employed people in Latvia work in micro-enterprises.

The popularity of this tax regime has since turned against it: politicians believe it is being abused by businessmen as a form of labour tax optimization and micro-enterprise employees have minimal social guarantees and are therefore under a higher risk in the even of illness and unemployment later in life.

January 1st marked the coming into force of a new redaction of the law that provides for raising the tax rate to 11% for companies whose annual turnover is EUR 7,000.01 to EUR 100,000. Shortly after the approval of these amendments, politicians decided to rewrite this regulation. They still cannot come to an agreement.

We are losing them

It would be best if legislators could decide on the fate of the most demanded instrument in Latvia that allows residents to survive as soon as possible. This is because demographer Ilmars Mezs believes that Latvia will experience a sharp deficit of labourers after 2020. He believes deficit will impact engineering-technical professions and the country’s construction industry the most. Nevertheless, Latvia still has the opportunity to convince Latvians living abroad to return home.

While current return rates of Latvian migrants is 10-20%, it is planned to increase this proportion to 30-40%. The state should use financial stimulants, but very carefully, in order to make sure those still living in Latvia do not get the idea of also travelling to England in search of a better life.

It should be mentioned in this regard that the Environmental Protection and Regional Development Ministry has published an analytical report that contains many shocking facts. According to this report, Latvia’s population has declined by 25% over the course of 1990-2014. And this was ‘accomplished’ without any wars or natural disasters. According to estimates of Eurostat, if emigration in Latvia continues at the same rate, Latvia will have lost another 20% of its population by the year 2020.


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