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Tuesday 25.07.2017 | Name days: Jēkabs, Žaklīna
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Economic Diary of Latvia. Micro tax has led to macro problems

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUThis week, the government, entrepreneurs and social partners continued sharp discussions of the future of micro-enterprises and the tax regime to be applied to them in the foreseeable future.

One proposal suggests refusing the payment of mandatory minimal social fees and increasing micro-enterprise tax rate from 9% to 15%.This proposal was reviewed this week by members of the ruling coalition. And although this idea was presented by Prime Minister Maris Kucinskis, who represents the Union of Greens and Farmers in the parliament, members of Unity did not support it. Members of this party have many questions in relation to this proposal, said deputy chairman of Unity Edvards Smiltens. This is why the party has decided to ask Finance Ministry to clarify calculations and provide additional information so that a decision can be made later.

Economy Minister Arvils Aseradens (Unity) has said that such a sharp turn in the government’s position has put entrepreneurs in a very compromising position.

Politicians and legislators have put themselves in an equally unfavourable position. If people decided to go out in the streets to protest against new regulations and President Raimonds Vejonis returned the Micro-enterprise Tax Law back to the Saeima for a repeated review, means ministers and parliamentarians have done their jobs poorly.

As for entrepreneurs – there is currently no clarity about the future of micro-enterprises. Other possible changes for this tax regime are currently in consideration in the parliament.

One thing is clear, however: politicians intend to change this tax regime by any means. The current situation can be considered quiet before the storm.

Why invest in Latvia?

Instability and unpredictability of Latvia’s tax policy is one of the reasons why foreign investors rate the country’s investment climate poorly. It is mentioned in a study by the Foreign Investors Council in Latvia ‘Sentiment Index 2015 – 2016’ that investors are influenced by delayed structural reforms and non-transparent court system in Latvia. The main reason for concern remains the same – taxes. A representative of a company has said: «Why would anyone want to invest in Latvia if tax changes are added without consulting others, and the only way out for entrepreneurs to find truth is turning to court. This happened with solidarity tax.»

Only five out of 32 interviewed foreign investors believe the tax system in the country is either good or has improved in comparison with last year.

In spite of the fact that most foreign investors in Latvia have noticed only insignificant improvements in the country’s investment environment in the past twelve months, half of them intend to keep investing money. This position was expressed by 16 out of 32 interviewed foreign investors.

Companies that do not plan to perform investments mentioned multiple serious obstacles for business development in the country, including unstable economic situation, unclear development perspectives and excessive bureaucracy. A representative of a company in the processing industry admitted having plans to leave the Latvian market because of high energy costs.

Investors urge politicians to resolve demographic and labour force availability problems.

Major infrastructure projects

In terms of realization of major investment projects, however, the government shows remarkable coordination, including on the international level. This week it became known that the among Baltic States in relation to Rail Baltica project could be signed at the beginning of 2017 in the period of Estonia’s presidency over the Baltic Assembly and Baltic Council of Ministers. Once the agreement has been signed, parliaments of the three Baltic States will have to ratify it.

The agreement government conditions for the construction of Rail Baltica – its corridors, terms for construction, property rights for different parts of related infrastructure, financing and other matters.

Previously, institutions involved in the creation of the route for Rail Baltica in Baltic States reached an agreement in regards to the procurement and financing matters for the project.

Among other important events that transpired this week, Latvia was visited by speaker of the Lithuanian Seimas Viktoras Pranckietis. During his meeting with Prime Minister Maris Kucinskis, the two discussed regional energy and transport matters. Kucinskis noted that energy security is important to Latvia and the region as a whole. He believes the next important task is creating a joint gas market between Baltics and Finland.

While the creation of a unified gas market with Finland is currently in the planning phase, the construction of the third high-voltage power line between Latvia and Estonia has entered procurement stage. Estonian Elering has announced a tender. The total cost of this project is EUR 172 million, of which EUR 112 million will come from the European Union. Construction will commence at the end of 2017 and will last three years.

Be reasonable with gifts

Other sales are gradually speeding up – sales of Christmas gifts, to be exact. December is the month when card transactions usually surge. January, on the other hand, is the month when card transactions usually decline rapidly.

According to DNB Bank’s everyday service expert Janis Dambergs, it shows that people often spend more money on holidays than they initially plan. This is why it is important to plan purchases to avoid worsening financial state after festivities. To help residents make reasonable purchases, the bank has compiled a list of useful pieces of advice for safe shopping.

First – make a list of important purchases to avoid spending money on purchases you don’t need.

Second – live by your budget. Don’t use fast loan services in the spur of the moment. If you cannot afford an expensive gift, pick a more economic option.

Third – shop online. Often goods found in supermarkets can be found at cheaper prices on online stores. In addition, shopping online also helps save time without worrying about other shoppers.

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