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Wednesday 18.07.2018 | Name days: Rozālija, Roze

Economic Diary. Who will pay for Euro transition?

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The Latvian Traders Association goes off in full alert: Euro transition will cost even the small shops 400 LVL. In total though, Euro transition expenses for nearly 40 000 retail trade enterprises will not exceed 16 million LVL. In order to reduce expenses, the association has prepared a number of proposals to the Finance Ministry.

Who will pay for Euro transition?

As the head of the association, Henrik Danusevics, said this week, the largest expenses for merchants are the reprogramming of their cash registers’ software to show both currencies: LVL and EUR. This is why the association believes there is no need to overcomplicate the transition process – it would be enough to just show price tags in the Euros from the start. It is also an option to follow Estonia’s example, where residents were distributed special calculators with a currency conversion function.

Another issue Danusevics mentioned – cash availability. Shopkeepers will need to have the new currency on January 1, 2014 already, because they will be required to take both Lats and Euros in the following two weeks, but give only Euro as change. First off, there is an issue of safe transport of the required amount of currency. Secondly, commission for conversion – who will pay for it? Thirdly, how will the stores receive additional funds from banks – as loans? If yes, what are the conditions? Finally, security remains a serious issue. Merchants will be required to keep cash for 14 days in the amount of a five day turnover amount, which will undoubtedly attract a criminal element. This is why the state must provide additional police posts, the National Guard and, perhaps, soldiers at trading spots.

The Finance Ministry promises that it will take into consideration some part of the association’s proposals: such as Estonia’s transition experience; assess the models of cash registers currently in use and how hard and expensive it is to reprogram them.

Tax regimes to be optimized

Latvia’s government adopted a concept of consolidation of simplified tax regimes this week. Latvia has three such regimes.

The oldest one, patent fees, was introduced in 1994: it is available to representatives of specific professions (workmanship; photo, video and audio production and others) and provides for fixed payments, the size of which depends on the profession and municipality. The second, fixed income tax (FIT), was introduced in 2008. It is available to individuals carrying out entrepreneurship without hired employees with annual revenue of up to 10 thousand LVL; size – 5% of income. The third – microenterprises (9% of income) – available for business with revenue up to 70 thousand LVL per year and provides for a limit to the number of employees and their income.

The approved state concept states: the three regimes often partially overlap. They do not give enough motivation for business development and are often used for tax optimization. In order to resolve these problems, the FM has prepared amendments to a number of laws. Firstly, the FIT will be abolished – it is much like the microenterprises tax. Secondly, simplified regimes will be included in the “anti-laundry” regulations of the Taxes and Excises Law. Thirdly, salaries of microenterprises employees will be linked to the average salary across the country.

The concept also provides for a “whitening” of irregular working hours (if their annual income from such additional workload is not 2 thousand LVL). They will be legalized using the minimum income tax – it will be required to be paid once a month or year. It may be 36 LVL per year.

The Baltics are given an exception

As it became known this week, Herman Van Rompuy is offering to make an exception for Baltic States for funding division from the European Equalization Fund, because Latvia, Estonia and Lithuania suffered the steepest GDP reduction during the crisis. According to, it is planned to raise the cap of funding for countries that suffered a more than 1% drop of GDP in 2008-2010, by more than the current 2.4% of GDP. No specific numbers are offered.

During the crisis, Latvia’s GDP dropped by nearly a quarter – from 16 billion LVL in 2008 to 12.7 billion LVL in 2010 (IMF data). Because of such a low starting base, funding available to our country could be reduced by 60 million EUR. Any reduction of that size can be a serious challenge for local economy, because EU funds provide more than 70% of public investments.

Long settlements with the state

PricewaterhouseCoopers (PwC) published its Paying Taxes 2013 report this week. It evaluates the fiscal collection systems in 185 countries of the world. Latvia was given 24th spot among members of the EU and the European Free Trade Association (Sweden, Norway and Iceland) in terms of the time necessary for business to pay taxes.

The general tax rate in Latvia, according to the survey, is 36.6%, as opposed to 37.9% last year. Most of the burden (27.3%) is for workforce taxes. The time business spends to pay taxes remains Latvia’s problem. According to PwC, this time is equal to 264 hours per year. 139 hours are payments related to workforce. In general, the entire region has an index of 184 hours: in Estonia 85, Lithuania – 175.


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