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Tuesday 25.04.2017 | Name days: Līksma, Bārbala
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World Bank asks Latvia to introduce labour force tax progressiveness

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RULatvia has to improve its tax system in order to offer its residents better services, say specialists of the World Bank in the report on Latvia’s tax system.

To reduce social inequality, the World Bank suggests introducing progressiveness for PIT in addition to social support for people with low income.

The World Bank notes – if Latvia wishes to realize residents’ hopes for better public services in healthcare, education and transport field, the country should consider the option to increase budget revenue by improving its tax system.

It is mentioned in the report that income tax and benefits are the most appropriate tools for the reduction of inequality. Progressiveness in PIT in addition to social support for people with low income could help reduce inequality in Latvia.

According to the World Bank’s estimates, introduction of three levels of PIT rates – 19%, 23% and 33% – and non-taxable minimum could help reduce inequality and raise budget revenue in Latvia.

«This report offers a number of measures to increase tax revenue from the current 29% of GDP to the government’s goal of 32%,» explains senior economist of the World Bank and co-author of the report Emilia Skroka. She says Latvia’s economy has suffered in recent years from fluctuations. Because of that, it is necessary to create a fiscal buffer to increase flexibility.

The World Bank mentions in the report that tax revenue in Latvia is lower when compared with many other countries. Social inequality also remains high when compared with EU member states. Tax revenue ratio before GDP fluctuates around 29%, which is one of the lowest indexes in the EU (ten percentage points below the average EU index and approximately five percentage points below the average index among OECD member states).

«Latvia has to find a way to increase revenue to satisfy its needs, especially support investments in education and human skills,» says World Bank’s director in Poland and Baltic States Carlos Piñerúa. He emphasizes that inequality in Latvia is higher than what is found in other countries. «Short-term perspectives are good, which should ease the increase of revenue that can be diverted towards support of employed people with low income and their families,» he says.

The report mentions that to achieve tax revenue increase of 3% of GDP, as stated in the government’s goal, it will be necessary to add significant changes to the country’s tax system.

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