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Sunday 23.10.2016 | Name days: Daina, Dainida, Dainis

Economic Diary of Latvia. Latvia has the best taxation system in the world

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUIn the context of approval of the next year’s budget, it seems Latvia’s taxation system has not been criticized only by the laziest people. As it turns out – Latvia has the third most competitive taxation system among OECD countries. Such is the conclusion made in this week’s published International Tax Competitiveness Index.

Meanwhile, the budget for 2017 was approved by the government this week in spite of sharp criticism voiced by experts and the population. According to Prime Minister Maris Kucinskis, the next year’s budget provides additional financing to priority sectors – education, healthcare, interior and exterior security.

On the day of the budget’s approval, there was a meeting of the National Council for Trilateral Cooperation. During this meeting, social partners congratulated the Cabinet of Ministers for improving communications, but still criticized certain parts of the budget. For example, Chairman of Latvian Chamber for Commerce and Industry Janis Endzins noted that a number of important matters were resolved during the composition of the state budget for 2017. Nevertheless, he added that the remaining problems may become more problematic in the future. He named the solidarity tax, supervision of small businesses and labour monitoring as such problems.

Concerns about Latvia’s tax policy and its impact on businesses environment were also voiced by the head of Latvian Association of Commercial Banks Martins Bicevskis.

Shortly before the budget plan’s approval, Director of Latvian Employers’ Confederation Liga Mengelsone voiced her skepticism about it. According to her, the budget plan is too carefully put together. In addition, she said it is not aimed at the development of the country’s national economy. She also said that nothing was mentioned about any big structural changes in tax policy in 2017. Insignificant changes like automobile tax and natural resource tax could lead to an avalanche effect and create complications for businesses, believes the confederation’s director.

It’s not the place that giver colour the country, it’s the other way around

In spite of business organizations continuing to criticize the country’s tax policy and budgets, it turns out that Latvia actually has the third most competitive taxation system among countries of the Organisation for Economic Co-operation and Development. Latvia is behind only Estonia and New Zealand in terms of competitiveness of its taxation system, according to information from the latest International Tax Competitiveness Index.

Latvia is 2nd after Estonia in terms of tax competitiveness in businesses and 25th among OECD member states in consumer taxes. Latvia is on the 6th place when it comes to the competitiveness of property taxes, 7th in terms of personal income taxes and 2nd in terms of international taxes.

OECD notes that Latvia, which is a recently joined member, has a relatively small corporate tax (15%), fast tax return process and low personal income tax.

It is worth mentioning that France is on the last place in the tax competitiveness index.

The International Tax Competitiveness Index shows how well a country’s taxation system contributes to stable economic growth and investments. The index views more than 40 tax policy indexes in five categories: corporate tax, personal tax, consumer tax, property tax and taxation of profits abroad.

But even here business organizations decided to voice their opinions. Latvian Chamber for Commerce and Industry announced shortly after the publication of the index that the state of Latvia’s taxation system is not as good as it may seem. Latvia’s current problems are caused by large labour taxes – Estonia and Lithuania both have smaller taxes in this field. With that, it can be concluded that Latvia is the least competitive in this field, LCCI notes.

Apartment matter

Nevertheless, according to data published by Eurostat this week about real estate costs in EU member states, Latvia’s economic situation is rather good. Real estate prices in Latvia have grown 10.3% over the course of the year (Hungary has the same result). Real estate costs have grown 9% in Austria, 8.8% in the UK and 8.7% in Sweden.

Significant growth of mortgage loan services proves that Latvia’s real estate market is far from stagnant. In the first half-year, Latvian banks provided mortgage loans worth EYR 217.1 million, which is 71% more in comparison with the analogous period of last year, as previously reported by Latvia’s Association of Commercial Banks.

According to the president of the association Martins Bicevskis, there are multiple reasons for that. The main one is that the state family support programme. Loan services are also stimulated by the development of economy, which contributes to income growth and people’s desire to improve their living conditions.

But people always have the desire to improve their living conditions. However, we all know that people cannot always afford that.


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