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Saturday 24.03.2018 | Name days: Kazimirs, Izidors

Entrepreneur: Tokyo City case symbolizes a much more serious problem

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUIt has become known recently that State Revenue Service’s Finance Police commenced a criminal process in relation to envelope wages and tax avoidance at Tokyo City restaurant network. However, this case is not as much about the company as it is about the possibility of such situations repeating, says entrepreneur and Jurmala airport board member Zane Driņķe.

She says: «A specific company only serves to emphasize the general situation, in which it is possible all involved sides – employers and employees – work and live under such conditions. This begs the question – how did things end like this? This also leads into the topic about the state tax policy, the environment businessmen and employees have to work in.»

Separate cases demonstrate a system in place

The expert says society has not yet forgotten the previous scandal, when another catering company was caught avoiding taxes – Gan Bei.

«This only proves that there is a system in place – it is not just individual companies to blame. This system consists of several aspects: businessmen’s thinking and historic background of the business environment, the country’s relatively small experience working in a free-market environment, lack of capacity of supervisory institutions, taxes and penalties applied for violations. If those aspects are not changed, the system will not change and we will keep hearing more about such cases,» says Driņķe.

Not all businessmen in Latvia are the same

«I do not generalize – not all businessmen in Latvia are the same! There are those who pay taxes and understand why paying taxes is important. There are also those who pay some taxes and refuse to pay full taxes for whatever reasons. There are also those who pay but see no real reason behind; they pay because they fear potential sanctions for not paying taxes. Unfortunately, there are also those who intentionally refuse to pay taxes,» the entrepreneur explains.

She also asks a rhetorical question: «How should the state combat tax avoiders?»

She continues by saying that information has been reported in Tokyo City’s case that businessmen were not intimidated by the possible penalty for avoiding taxes. In addition, businessmen involved in the scandal were paying envelope wages in the open. «Perhaps stricter punishments are in order? But to force dishonest businessmen to pay taxes, changes were added to the law one and a half year ago. Those changes provide a fine of EUR 370,000, prohibition to engage in entrepreneurial activities for a period of up to two years and even a sentence of up to two years in prison. Unfortunately, no real results have followed since. Perhaps the problem is not with harshness of penalties? Perhaps the problem is also associated with the capacity of supervisory institutions? There are perpetrators, without a doubt. But can the responsible institutions identify every single one of them? This means that if we want to end this practice, we should consider increasing capacity of supervisory institutions and available resources,» entrepreneur Driņķe suggests.

Supervisory institutions require greater capacity

This problem affects law enforcement authorities, businessmen also active search for solutions. Organizations working in the industry believe the problem lies much deeper – in the tax policy, the expert says.

Latvia also has high labour tax – this reduces competitiveness of businesses and leads to not only to envelope wages, but also to a situation when companies abandon Latvia in search of countries with better a tax environment. We have not yet reached a high enough development level to afford the high labour taxes we have now. Lower labour taxes would motivate businessmen to work honestly and think less of envelope wages.


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  1. ZC says:

    Labor taxes + social “taxes” altogether are way too high. 720 eur net salary in workers hand cost approx. 1200+ eur for employer. Get the piece of humor from that.

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