Finance Ministry promises cheaper life for Latvian residents. However, reduction of PIT would impact municipalities the most. Because of that, a situation has formed when Aivars Lembergs, the infamous Mayor of Ventspils accused of serious crimes, and Finance Minister Dana Reizniece-Ozola have come head to head.
On 26 February, Nekā Personīga reported that it is now more economically beneficial to found a business in Estonia than in Latvia. In Estonia, profits invested in development are not applied with tax. Because of that, Latvia businessmen often decide to relocate their businesses to Estonia.
«Latvian businessmen are actively looking at what is happening in neighbouring countries. They see that Estonia’s offer on re-invested profits is very attractive for them. The option of relocating business activities to Estonia is very topical. We, of course, want them to work here in Latvia and re-invest profits in the country,» Finance Ministry’s parliamentary secretary Edgars Putra told the programme.
Finance Ministry also promises cheaper life for Latvian residents. For annual income under EUR 45,000, it is planned to reduce PIT from 23% to 20%. For wages under EUR 1,350, tax free minimum will be EUR 300. Minimal wages are planned to the increased from EUR 380 to EUR 430, as reported by Nekā personīga.
Aivars Lembergs was the first to object to these changes.
Existing 10% dividends tax to be reformed
For income earned abroad, the applied tax rate will be 20%. In Latvia, it will be replaced with corporate income tax, which will be 20%, if that income is not invested in the company’s development. If that money is re-invested in business development, the tax rate will be zero.
These changes will make life easier for everyone, but they will not guarantee the same revenue for the budget. Reizniece-Ozola hopes this will be compensated with rapid economic growth.
«And I believe it will be necessary to realize this tax reform next year, because the next couple of years are the ones in which we can expect a massive influx of resources and EU funds. This will help secure growth and make the realization of the reform simpler from a financial and budget-balancing perspective,» said the minister.
Reizniece-Ozola has yet to discuss this reform with leaders of large cities in Latvia. Mayors feel as though their opinion does not matter, Nekā personīga notes.
Reduced PIT would impact municipalities the most, the programme reports.
«We are working with our partners, because the largest changes always cause caution towards them. But it is not possible to predict and consider everything. We also have to consider that when we discuss labour tax reduction, it directly affects municipal budgets, as 80% of revenue from this tax is diverted to municipalities,» Reiznie-Ozola told Nekā personīga.
«We are part of the work group for the development of the main guidelines for the tax policy. Work is being conducted as part of the National Trilateral Cooperation Council, in which we are not represented. We have received a letter from Finance Ministry, saying that the other work group and the non-governmental sector will commence work once all proposals are ready,» says CEO of Association of the Major Cities in Latvia Viktors Valainis.
When asked if the work group has had any recent meetings, Valainis said: «We have gathered once to voice opinions about research of the World Bank and we had certain proposals to discuss. We also decided to wait until the research has been translated into Latvian. Now we’re waiting.»