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Tuesday 25.07.2017 | Name days: Jēkabs, Žaklīna
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Economic Diary of Latvia. How to save millions

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUThis week, municipalities of Riga region hoped to submit to Prime Minister Maris Kucinskis proposals for changing the policy for the administration of real estate taxes.

Although this tax is provided to the local government in full, municipalities sharply criticize the order of establishment of tax indexes and plans for the equation of cadastral value to the market values.

According to amendments to the Law on State Cadastre, the base of cadastral value of real estate properties has to equal to 85% of the market price is to be approved every two years for all real estate property groups.

On 19 April, 2016, the government established that the base cadastral value will remain the same in 2017. Justice Minister Dzintars Rasnacs’ proposal to put off the adoption of a new order for the calculation of cadastral value until 2018 was supported. The Justice Ministry concluded that the price of residential real estate alone increased in some regions of the country so much that the tax rate could grow two times. Finance Ministry, other ministries and Latvian Union of Local Governments plan to prepare amendments to the law in order to provide a tax policy that would allow people to afford real estate tax. Last week, Environmental Protection and Regional Development Minister Kaspars Gerhards ordered the preparation of amendments to the Real Estate Tax Law that would provide for the reduction of the tax rate on private property that is the person’s sole place of residence.

This week, Latvian real estate association LANIDA announced the proposal to evaluate the tax policy in real estate and develop a taxation system that would not negatively impact the financial state of households and be comprehensive for residents.

The association voiced four proposals that could contribute to the base cadastral value and reduction of tax payments.

First: real estate tax should not be a mathematical formula, but rather comprehensive and affordable for every resident of the country.

Second: transition to a single rate for land and buildings. The current tax rate is 1.5% of cadastral value for apartments and homes (0.2% and 0.6% respectively). In Estonia, land tax rate does not exceed 0.2%, living premises are not taxed at all. Compared with Estonia and Lithuania, Latvia has the highest real estate tax rates.

Third: adopt a support system for first / single housing at the expense of the non-taxable minimum for residential real estate.

Fourth: municipalities have to stop using residents’ declaration as a system for the application of tax reliefs for real estate and instead develop a different discount mechanism.

As reported by head of Finance Ministry’s Direct Taxes Departments Austra Kalane, the ministry is currently developing multiple models for changing the real estate policy in the future.

How to save millions?

On 28 April, Bellevue Park Hotel hosted a conference titled ’Clever state management’. As it turns out, the e-state system helps save a mountain of paper nearly as tall as the Eiffel Tower every month. In addition, the electronic signature system helps save 2% of GDP every year. This was explained in detail by CEO of e-Estonia Showroom @ Enterprise Estonia Anna Piperal.

Initial investments into the creation of networks, development of digital services and education of the population in the use of the electronic environment can help save considerable resources in the long-term perspective. In Estonia, where 99% of state and municipal services are provided electronically, the state spends 40 times less money on IT maintenance in comparison with Finland and 400 times less in comparison with the UK.

At the moment, more than half of 300 different state services can be access in electronic form in Latvia. This allows state and municipal governments to reduce the administrative burden, increase efficiency of the state administration and accessibility of information for decision-making processes.

A victim of circumstances

International insurance risks assessment company Coface published this week its quarterly assessment of the industry risks in the metal business. The main conclusions – the situation in Europe is gradually improving and the situation in Asia and Latin America is gradually becoming more and more unfavourable.

The assessment of the metal business has been changed a second time since 2015. The risk for Latin America, Near and Far East has been changed to ‘very high’. These changes are a result of a recent decline of prices for ferrous and non-ferrous metals, which, in turn, impacted revenue of metalworking companies. This makes this industry the riskiest industry in the world. The risk in Western Europe and Asian developing countries remains ‘very high’. The risk of countries of Central Europe and North America is ‘high’.

KVV Liepаjas metalurgs became a victim of circumstances in Latvia. This week, the company began firing employees. In total, it is planned to lay off nearly 300 employees.

Previously, Latvia’s State Treasury and FeLM signed an agreement on cession of claims towards KVV Liepаjas metalurgs worth more than EUR 66 million.

Ref: 017.109.109.7852


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