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Sunday 22.07.2018 | Name days: Marija, Marika, Marina

Economic Diary: Smash Business with Taxes

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Author: PantherMedia/SCANPIXOfficials worked on a whole package of law amendments this week. Those mostly cover entrepreneurship. Will these amendments be approved. If so – in what way? It is unknown, however, whether any of the amendments will make entrepreneurs rejoice.

No take-backs?

The State Revenue Service (SRS) has creative thoughts on how to increase the revenue of the state treasury. Officials propose giving responsibility for corporate tax debts on the members of the Boards of the companies. The author of the proposal is Maryan Burij, the head of the SRS tax debt collection office. Officials of the Saeima sub-commission of the Budget-Finance Commission were discussing his ideas this week.

Some European countries, such as Estonia, already have such regulation. The volume of unpaid taxes there is two times smaller than that of Latvia. This is not, however, proof of effectiveness.

There is no unity among parliamentarians and business representatives. It is also unclear as to the conditions for delegating tax responsibility. Members of the sub-commission have come to the conclusion that they do not understand which law needs to be corrected and what changes need to be added. In the end, the SRS was told to develop its creative idea to the state of a bill. It is not reported when the parliamentarians will return to discussions.

According to SRS, the total amount of tax debts across Latvia exceeded 1 billion LVL in the beginning of May. More than half of this amount is made up of debts that cannot be collected.

Real estate should not remain empty

In attempts to improve the collection of taxes, the old idea of applying a penalty tax rate on real estate that is not being used, increasing it from the current 0.2 – 0.6% (based on the cadastral value) to 1.5% is being restored. The idea has already been approved by the Saeima Budget-Finance Commission.

The innovations will mainly affect banks and real estate management daughter companies. These structures have created quite a surplus of funds over the crisis years. Furthermore, the Latvian Union of Municipalities, which also supports the idea, believes that the changes will help ensure an equal approach to all entrepreneurs: one pays 1.5% for empty offices, the others pay in accordance with a beneficial tariff. Another argument in favour of this initiative – the activity of the rental market: i.e., increased rates will force owners to seek tenants.

Furthermore, the commission has decided that refusing the real estate tax for objects that are considered cultural heritage should not apply to buildings in a poor state. This will be determined by the State Inspection for Protection of Cultural Monuments.

Businessmen to improve the law

While fiscals are searching for new ways of screwing nuts and modernizing old, businessmen are experiencing more serious problems. Such as the Law on the Value Added Tax. Business representatives have come up with 57 proposals on how to improve this document.

The law and the accompanying rules of the Cabinet of Ministers came into force on January 1, 2013. Seeing as how the basics of the new edition of the law were developed in cooperation with business supporting organizations, it was intended to have the document improve the lives of businessmen. However, more than 8 thousand taxpayers turned to the SRS in the first month of the law becoming active. It became clear that a large number of changes will need to be added to it.

The wishes of businessmen can be differentiated into several large groups. Each covers a range of aspects of calculation and account of taxation. In particular, businessmen have a lot of questions in regard to the mechanism for exercising the right of correction of input in events of destruction or theft of property. Furthermore, there are plenty of sections relating to the Register of VAT payers, including businessmen from third countries. A completely different minefield is the use of VAT in real estate transactions.

Nearly one-third of these legislative initiatives can be submitted to the state secretaries this June. After the completion of the required bureaucratic procedures, the amendments will come into force on January 1, 2014. The second package of amendments is due to be prepared before autumn.

Latvia has no shadow

Good news – grey business in Latvia is losing its positions much more rapidly than it is in the neighbouring countries, according to the latest shadow economy index. Its authors are certain – there are two reasons for the decline: the increase of the risk of being caught and the general recovery of Latvia’s economy.

Researchers of the Riga Stockholm School of Economics Arnis Sauka and Talis Putnins compile the index every year. Thanks to them, the survey shows in detail how the proportion of shadow economy changes in Latvia, Lithuania and Estonia. Some two years ago, it seemed like at least seven years of hard work were separating Latvia from its neighbours. In reality, however, Latvia needed a lot less time to come close to their index.

Commenting the results of the survey and the dynamics of Latvia’s changes, Sauka noted that these things accurately reflect the events in the economy. The fall during the crisis was the deepest and most rapid in the region. This made the shadow even bigger. And vice versa – Latvia’s entrepreneurship has been developing more rapidly than that of the country’s neighbours. This contributed to reducing half legal business.


Leave a reply

  1. J. says:

    Up to 1.5% annual tax on real estate?
    Many owners can barely afford down-payment on mortgages. This might force them to sell. This is confiscation, legal plunder, USSR II.

  2. jj says:

    The tax will be on real estate that is not being used. If someone can afford to buy real estate and then not use it then maybe they can afford to pay the tax!!! If they cannot then they should not have bought it in the first place.

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