Entrepreneur organisations have launched an active lobbying campaign in order to cancel Saeima’s approved Solidarity Tax and instead propose alternative options for the tax system. While Solidarity Tax would affect only a portion of residents – large wage recipients who earn more than EUR 48,600 annually – alternative proposals would affect absolutely everyone. This could potentially cause an increase of VAT to 22%, warns Finance Ministry.
«Entrepreneur organisations have begun active lobbying campaigns in the parliament in hopes of cancelling Solidarity Tax. Unfortunately, what they want to accomplish may potentially cause VAT growth. This will likely put large families and residents will low income at a disadvantage. It would also maintain the regressive tax system and make certain large wage recipients would pay smaller labour taxes than the average Latvian residents,» – said Finance Ministry’s Parliamentary Secretary Arvils Aseradens.
If Solidarity Tax ends up cancelled, the alternative proposed by entrepreneurs could be the increase of VAT rate. Finance Ministry is categorically against such proposals. Raising VAT would affect all residents, especially people with low income. People with large wages would not even notice it.
Finance Ministry notes that one of the most important tasks given to the ministry by the Cabinet of Ministers is reducing income inequality.
One of the major causes of income inequality is tax regression. All successful western countries have progressive tax systems. People who earn more money also pay bigger taxes and the tax burden of small wage recipients is smaller. There are only several countries in the EU that retain tax repressiveness, and those countries are mainly located in Eastern Europe, explains the ministry.
The goal of solidarity tax and differentiated tax free allowance is to reduce income inequality, something the government has put it its declaration and which also complies with recommendations given by the European Commission and OECD. This is not about merely fiscal influence; it is also about resolving specific problems. Problems entrepreneurs and their lobbyists pretend to not see, the ministry adds.
This is why the Cabinet of Ministers has decided to support the adoption of Solidarity Tax as part of the next year’s budget – to relieve the tax burden.
It is also worth mentioning that large wage recipients will be actually affected by the tax only starting with 2017. Employers will be able to receive compensation from the state budget next year.
«This is why entrepreneur organisations’ opposition toward fixing problems in the system and partially equalizing the tax burden by reducing inequality in society seems confusing. The Cabinet of Ministers has developed the next year’s budget by putting external and internal security, continued accessibility of healthcare and improving education as the main priorities. Other priorities include reduction of income inequality and tax repressiveness,» – notes the ministry.