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Tuesday 20.02.2018 | Name days: Smuidra, Vitauts, Smuidris

Economic Diary. We do not love taxes, but we do love our country

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Latvian businessmen have shown a remarkable “dual personality”: one the one hand, they are extremely dissatisfied with the state tax policy, while on the other hand, more than half of them (56%) would not switch to another country if it would offer lower taxes.

Latvia’s patriots

These are the conclusions made from the survey on domestic companies’ management, which was carried out following the order of the Grant Thornton international alliance of audit and consulting firms. Another result of this survey: Latvia was included in the TOP 10 list in terms of businessmen’s dissatisfaction with how the government uses its tax burden instruments to reduce economic pressure on private business.

With that, only one-fourth of interviewed Latvians were prepared to relocate their business to another country – but only under the condition that Corporate Tax would be 10% lower than the current one in Latvia. Furthermore, the survey showed that 78% of our businessmen are prepared to refuse a number of benefits on the aforementioned tax in exchange for the general reduction of its rate.

Everything is taught through comparison

One more interesting research in regard to PIT in Baltic Countries was presented by the Swedbank Institute of Private Finances. According to specialists, the largest tax-free allowance is found in Estonia – 101 LVL (45 LVL in Latvia). Lithuania employs a regressive scale: if a person’s salary does not exceed 163 LVL, the tax-free allowance is equal to 94 LVL. As the salary increases, the tax-free amount decreases. Amounts starting from 643 LVL have no tax-free allowance. Both of these comparisons are not in Latvia’s favour.

If the tax-free allowance is reviewed in conjunction with dependents’ benefits, Latvia can very much compete with Estonia in the “certain groups of the population” category.

The tax-free amount for a working mother with a child will be 115 LVL (45 + 70 LVL per dependent). Starting from July 1, 2013, this amount will grow to 125 LVL (45 + 80). Under the same conditions, tax-free amount for one of the parents in Lithuania is 114 LVL (94 + 20). In Estonia, however, one child gives no benefits – 101 LVL – the same amount for all other working people.

Benefits of the Latvian state cease to be beneficial for the family as soon as it becomes full. If both parents in Estonia are working and have one child, their total tax-free allowance is equal to 202 LVL (101 + 101). If they have another child, however, this amount grows to 303 LVL. In Latvia, tow working adults with two children receive 230 LVL (45 + 45 + 70 + 70), in Lithuania – 249 LVL (94+94+20+41), under the condition that the parents have minimum salaries.

These support mechanisms clearly show state priorities. Estonia is interested in stimulating birth rates in all groups of the population, Lithuania is more worried about supporting the least protected residents. Latvia’s priority includes both. But Latvia has more attractive fiscal instruments on healthcare expenses and private pension funds.

This is market self-regulation

Returning to the topic of unbelievable it is worth mentioning the out-of-line move of the Latvian Non-banking Creditors Association. On the background of growing talks about strict monitoring of Latvia’s fast credit industry, most of the association’s members are prepared to refuse the use of unreasonably high penalty sanctions in regard to undisciplined borrowers.

The association has agreed to to make sure that penalties on credits issued starting with March 1, 2013 will not exceed the base amount of the debt. From now on, all companies that took on this obligation will have a special sign on their websites – “Responsible creditor.”

Previously, members of the association decided to stop issuing credits to individuals under the age of 18 and 19. According to them, this restriction will remain in force until the government creates a singe credit registry that will allow companies check a person’s solvency prior to issuing credits.

Bonds for the people

This week also made it known that the project of “national bonds” is progressing well: a company has be chosen to popularize the new investment instrument in the masses. The Inspired Communications company was chosen to develop and carry out the advertisement campaign.

The new financial product, called to become an alternative to bank deposits, according to estimates, could appear in Q2 of 2014. In order to avoid speculative transactions, there will be no secondary market for the “national bonds”. Their minimum price will be 1 LVL. The minimum investment volume per person will be set at 30 LVL, the maximum – 50 thousand LVL per day. Bonds trading will be carried out in internet-banks, branches of commercial banks and Latvian Post branches.

The money attracted from the residents will be used to pay for the international debt.


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