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Wednesday 24.04.2019 | Name days: Nameda, Visvaldis, Ritvaldis

Economic Diary of Latvia. The end of the privatization era

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUThe Latvian Cabinet of Ministers Committee approved the liquidation of the now 20 years old Privatization Agency this week. It is planned that this institution will conclude its existence before 2018.

The liquidation of the agency will be carried out in three stages. At first, the agency will hand over most if its functions to other structures in 2014-2015. This applies to real estate property – it will be handed over to Valsts nekustamie īpašumi in 2015.

The realization of its assets will continue in parallel to that. The agency currently controls 700 pieces of land, more than 1.5 thousand apartments and nearly 400 houses. A similar fate awaits capital shares of the agency. It currently acts as a co-owner of ten Latvian companies. The most precious assets are – 51% of shares in Lattelecom and nearly 40% at Latvijas Mobilais Telefons. Starting from the second half-year of 2014, securities will gradually migrate to a forming structure – State Capital Shares Management Bureau (SCSMB).

Control over more than 1 thousand agreements that were once made by the Privatization Agency will be handed over to SCSMB and Valsts nekustamie īpašumi (VNĪ) in 2015. The same applies to most of the litigation the agency is involved in.

The second stage will have the agency, now with a different name but the same legal status, continue to operate with the shares of the heirs of the nationalized Parex banka (Citadele Bank and Reverta) and the problematic assets of Latvia’s Mortgage and Land Bank. In the third stage, in 2017-2018, the Privatization Agency will cease to exist.

Everything has a price

Discounts on Corporate Income Tax for large investments and new equipment are likely to be extended until 2020. The Finance Ministry proposed this during this Tuesday’s government meeting. However, the government’s generosity does not come from the kindness of its heart: the next year’s budget will require additional funds. These funds are planned to be collected from gambling business, LNG consumers and state companies.

The tax on gambling could be raised 10%, which is expected to bring an additional LVL 1.7 million to the budget. The second option is to increase excise tax on LNG from the current LVL 88 to LVL 113.15 per 1 ton. The third possible source of additional money – state companies. They are currently obligated to give away 90% of their profits to the state. Starting next year, It was originally planned to reduce this rate to 80% in 2014 and 70% in 2015. FM offers to postpone the schedule by a year (i.e., companies will be able to control 10% of their profits in 2014 and 20% in 2015). This is planned to bring the budget LVL 6.5 million.

Entrepreneurs versus fiscals

The Latvian Chamber for Commerce and Industry (LCCI) plans to submit a plea to the Constitutional Court against the State Revenue Service (SRS). Is it does not help, the next possible step would be a direct complaint to Brussels. Representatives of LCCI are dissatisfied with the inequality in relations between entrepreneurs and fiscals.

For example, in the event of a delayed payment, entrepreneurs are forced to pay penalties that are calculated starting the first day. However, if it turns out that officials made a miscalculation in an audit, entrepreneurs can return the amount. But a separate application needs to be submitted in order to recover the penalties.

The reason for this is that there is no clear term for SRS to make decisions regarding the return of overpaid amounts or unpaid taxes. This primarily applies to VAT. The state structure had reported in at beginning of August that the average term for finalizing applications is 15 days – 5 days less that it was in 2012. Some applications, however, take as long as a few months to review.

LCCI is currently gathering money in order to hire a team of lawyers who will compile the application that will be submitted to the Constitutional Council, calling to deem the current regulations as anti-constitutional and add the necessary amendments. Another possibility is also considered – filing a complaint to the European Commission. The perspectives of both options are being discussed at the moment. It is possible that they will substitute one another.

The LCCI notes that Estonia’s principle of equality between entrepreneurs and fiscals has been present for a long time. The organization wants to make sure the relations of the tow sides in Latvia become more balanced and the work of tax administration – more professional.

Some good news

There is some good news regarding the relations between citizens and state structures. The bill for a new law to make state institutions’ services friendlier and more available has been recently reviewed at the meeting of state secretaries. The document depicts a perfect scenario: of a person comes a state institution in person, everything must be done in a matter of one day. Additional requests will be sent by officials, not the person who came.

The annotation to the bill On Public Services notes that there is not a single legal regulation system in the country that would govern the interaction between state structures and clients. All areas related to this sphere of business are spread thin across different regulations. There is a serious lack of methodology and legal base. A similar situation is present with e-services: has all information regarding approximately 2,000 municipal and state services. But it is already out of date.

This makes things more complicated for officials and residents. The goal of the proposed document is to create and develop a system that would allow the government to reduce the overall administrative burden and improve the efficiency and availability of services.


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