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Sunday 21.01.2018 | Name days: Agne, Agnese, Agnija

Economy Minister: refusal to reduce PIT ruins any trust in the country's tax policy

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Daniels Pavluts

Daniels Pavluts

The government representatives’ publicly expressed opinion that the reduction of PIT may not be carried out in accordance with the Tax policy strategy 2011-2014 schedule, ruins any trust in favour of the current tax policy, as experts of the National economy Council of the Economy Ministry believe.

Head of the Latvian Commercial Banks association Martins Bicevskis admits that the last year’s decision to reduce PIT in the next three years was taken in as a clear tax policy that gave a signal to both employers and businessmen about planned workforce tax reduction initiatives. “At the same time, while the only medium-term promise that was confirmed by the government one year ago, is being amended, it means that all players involved in budget creation will have a completely different level of trust for the government’s promises”, – Bicevskis admits.

Latvian Economy Minister Daniels Pavluts notes that Finance Minister Andris Vilks ruins the trust of businessmen, investors and society with his statements regarding the limitation of PIT rate reduction, because this voids the promise confirmed by the law. “This is an unacceptable situation, and I hope it can be changed for the good”, – Pavluts says.

He agreed that the matters of inequality and poverty need to be resolved, but, according to him, new promises are being made at the expense of questioning that which was promised by law in the past.

“This situation is inadequate. It is far from being an example on how to create a good, worthwhile policy. Inequality is one of Latvia’s largest problems. Something foreign experts often point at. But it doesn’t mean that this policy should be realized at the expense of other achievements. The questioning of previous promises is destructive to our abilities to attract additional investments and create new jobs”, – he said.

The minister believes that it is necessary to first reach an agreement on a complex approach on how to resolve the problems of inequality and poverty. “There should always be a discussion before making some important decision. There will be no easy decisions. Either way there cannot be a situation when complicated decisions are made without informing anyone” – Pavluts says.

Bicevskis is also concerned about the the way the proposal to change or cancel the previous tax policy was voiced. “It does not make me feel as though they want to have a discussion with us. There is no possible development scenario put on the table that would predict what would happen if the new solutions are implemented, as well as what would happen if the new solutions are accepted at the expense of previous promises. There is nothing of the sort. We need an alternative. We need to evaluate possibilities” , – Bicevskis emphasized.

“I would like to remind everyone that experts had noted over the years that Latvia absolutely needs to resolve the inequality problem in consumption taxes. The main concerns of EC and IMF relate to consumption tax and the fact that PIT rate is reduced, but the issue of less wealthy residents’ tax burden is not resolved. Proposals had been put on the table one year ago. The reason why nothing was done was that other taxes had suddenly became a top priority”, – Economy Minister adds.


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  1. P says:

    A low, flat tax benefits everyone.
    Even 20% PIT + 21% VAT is almost half of one’s income in taxes. With social taxes, excise duties, and taxes which not everyone pays – but everyone bears the burdens of – such as corporate taxes, dividend tax, and capital tax Latvia has more than 50% tax.
    For example, why do you think clothes are so expensive in Latvia. It’s an indirect effect of all these taxes.
    If I were a politician my long term goal would be that all these taxes should sum up to 25%. Not more. It would force the government to waste less, but still have enough to offer public goods. Private citizens would have more money to consume and even to save. Savings means more investments which give a better future for all of us.

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