During the meeting with Latvian Pensioners Federation, Finance Ministry announced the possibility of application of 20% tax on revenue from capital that is not re-invested into the company’s development.
Edgars Putra, the ministry’s parliamentary secretary, reports that: «Work is being conducted on the development of basic tax principles. The ministry’s goal is to present a reviewed tax strategy on 1 April.»
«Finance Ministry is currently reviewing proposals submitted by Latvian Employers’ Confederation and Latvian Chamber for Commerce and Industry. Proposals will affect pensioners too,» Putra said. Employers’ organizations offered to reduce labour tax. The ministry intends to calculate fiscal influence from such a policy.
The first offer that came from employers was to reduce PIT and increase tax-free allowance from the current EUR 60-115 a month to EUR 300. Putra adds that tax-free minimum in Estonia is EUR 500. It would also help maintain benefits for dependents. Putra says that this proposal is financially sound – more than EUR 200 million. This is why the proposal should be viewed in relation to those taxes.
In addition, employer organizations offer to increase tax on capital. The deputy notes that the offer provides for the increase of the current tax to 20%, introducing the so-called re-invested revenue.
Another offer provides for the increase of tax-free minimum for pensions from the current EUR 245 to EUR 500. Putra says such an offer is rather ambitious and would affect 96% of pensioners. Although Putra notes that it is possible to consider smaller tax-free minimum for pensions, the difference could be diverted to the increase of small pensions.
Finance Ministry also considers the possibility of reviewing the excise tax. This would be viewed in the context of all Baltic States. The FM secretary points to the fact that Latvia’s longest border runs along Russia and Belarus. With that, raising excise tax rate would increase contraband.
Another offer provides for the reviewing of the threshold at which a business is registered as a VAT payer. Current regulations state that it is necessary for a business to register as VAT payer if its annual turnover exceeds EUR 50,000. The offer suggests reducing this threshold to EUR 30,000. It is also intended to introduce new grey economy combating measures, i.e. new reverse VAT payment measures.
Putra says that another major question to consider is the real estate tax, which is the most complicated matter. He explains that the situation with real estate tax differs from region to region in Latvia. According to Finance Ministry, it would be hard to apply the same mechanism to all of them. This is why this matter would be better resolved by municipal administrations. They could, for example, provide real estate tax relief of up to 90%. Municipal governments could assess which groups of residents would need reliefs the most.
The last offer considered by Finance Ministry included the reduction of annual turnover at the level of which a business qualifies as a micro enterprise. «Currently one of the requirements for the issue of micro enterprise status is that annual turnover must not exceed EUR 100,000. The ministry has decided to review the offer to gradually reduce this threshold to EUR 40,000. This is because lately there have been cases when the micro enterprise tax regime was being used to defraud taxes.»
After Putra’s presentation, pensioners asked different questions. They asked if Finance Ministry has any other proposals on its table for the tax policy. Putra responded by saying that most proposals coincide with the ministry’s views. Nevertheless, they have to be carefully evaluated, as their potential fiscal influence is approximately half a billion euros.