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Economic Diary of Latvia. What the future year has in store for us

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUAnother year comes to a close. It was rich with all kinds of events – good and bad. But before a new year can begin, people hope for best and wish the next stage turns out better than the last.

We enter the new year with a sense of partial clarity in relation to the micro-enterprise tax. At its last meeting for the year, the Saeima approved amendments to appropriate laws, stating that micro-enterprise tax rate is to reach 15% next year. For companies with turnover under EUR 7,000, the tax rate will be 12%. This exclusion will remain in force only for the duration of 2017. The current rate of the micro-enterprise tax is 9%.

Amendments also state that 70.4% of this tax in 2017 will be diverted to mandatory state social insurance fees. In 2018, this proportion will be 80%. These changes are related to the decision to refuse mandatory payment of minimal social fees.

In spite of the fact that the parliament also approved one more law on 20 December, stating that the beneficial taxation regime will remain in force one year after the coming into force of new legislation for small businesses, the government will have to submit legal drafts to the Saeima before 1 June 2017 to introduce a new beneficial tax regime for small enterprises to replace micro-enterprise tax.

Members of the Saeima also ordered the government to develop amendments to laws and have them submitted to the Saeima before 1 May 2017 to set the size of social insurance services for socially insured individuals applied with lower mandatory social fees.

Father Christmas comes and brings presents, right?

Businessmen – big and small – remain normal people who want to believe in miracles and Father Christmas.

A study conducted by Citadele bank shows that businessmen want more than anything else to see a government that would reduce taxes (71%) and more solvent customers (68%).

37% of respondents would like getting new business ideas from Father Christmas. 22% would like having talented and loyal employees. Furthermore, every fifth respondent would like Father Christmas to reduce competition in their respective field. Economist Martins Abolins notes that desires of Latvian businessmen are only possible under conditions of increased export activity.

Speaking of the main challenges that await businessmen in 2017, 70% of respondents mentioned attraction of new clients and exploration of new markets. 53% of respondents said their main focus is ‘survival’ and business preservation. 42% of entrepreneurs mentioned development and introduction of new products and services as the main challenge for 2017.

750 owners and CEOs of Latvian enterprises had taken part in the study.

Of invisible payments

In regards to other trends of the new year, it is work mentioning changes in transactions performed by buyers. Specialists recommend businessmen to pay attention to the fact that banks are gradually moving further and further away from direct contacts with clients and the market of electronic payments is getting new solutions very quickly. This was mentioned at the last week’s ‘Financial Forum 2016. New reality.’

The process will definitely speed up under the Second Payment Services Directive (PSD2) in 2018. Consumers will receive significant benefits from reduced prices for services and increased security. For example, PSD2 in the majority of cases forbids the application of added value to payments performed using cards. According to estimates from the European Commission, consumers will be able to save approximately EUR 700 million annually.

Consumers will have a wider range of choice when it comes to payment services, including innovative solutions. This is why every businessman, this especially applies to traders, should consider expanding their supported payment methods. For example, this includes payments using non-contact payment cards or virtual payment terminals using e-wallets and even invisible payments. Invisible payments are the next step in the sphere of mobile payments. Sensors stationed in a store ‘recognize’ the buyer. The application then contacts the bank registers the payment. The person then takes the products, walks past the payment zone and later receives a notification regarding the payment. According to experts, every fourth electronic payment may be an invisible one in the next five years.

What will the future year bring?

As for trends in the global economy that will definitely have an impact on Latvia next year, it is worth mentioning UK’s exit from the EU. However, not a single expert wants to suggest the possible consequences Brexit may have for Latvia.

Among other important trends, participants of the recent Business-strategy 2017 conference mentioned the growth of dissatisfaction from wealthy middle-class in rich western countries. This category of consumers is dissatisfied with the fact that their material wealth has not improved in the last decade. Because of that, people are looking for the ones to blame. One side to blame is globalization. The desire to slow down liberalization of international trade has been growing in society lately. This is because globalization benefits only the poor population of the world and new market economies.

Trade with wealthy countries has helped Latvia rise from being a poor country to a country with medium-to-high income level. This is why Latvia should do everything in its power to avoid a heavy Brexit. It is also highly important to continue improving relations with China. Furthermore, construction of Rail Baltica should be commenced with no delays to secure effective transport connectivity for Riga with other cities of the region, said advisor to the Bank of Latvia Andris Strazds.

Active pensioners (so-called silver economy) are expected to play a major role on the labour market. In 2022, the number of economically active residents aged 25-34 will be by one-fifth smaller than it is now. The number of economically active residents aged 55-64 will increase by the same amount. It is clear the country will be less able to rely on the new generation in the future. Because of that, it is worth thinking of ways to keep talented and experienced employees in their jobs, Armine Movsiyan, lead partner to KPMG Baltics said at the conference.

Experts also believe it is time to start adapting to new game rules in business, specifically the so-called share economy approach. A couple of examples of successful implementation of this form of business include Uber and Airbnb services. A study conducted by PwC shows that five sectors of shared economy had brought together income worth EUR 15 billion in 2014.

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