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Saturday 21.07.2018 | Name days: Meldra, Meldris, Melisa

Economic diary. SRS to make ‘face control’ strict for debtors

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RURecently published indexes for Q1 2014 do not suggest an unambiguous assessment of the development of Latvia’s economy: the decline in manufacturing stands next to retail trade growth and positive indexes of tax collection.

The general decline in manufacturing this March was 1.6% in comparison with March 2013, as reported by Finance Ministry. The decline in gas and heating sector (-19.2%) may have had an impact on general results, which can be explained with the unusually warm winter.

Some processing industries demonstrate growth

As expected – some manufacturers are suffering losses from the geopolitical conflict involving Russia and Ukraine. Those who focus on exporting goods to the west, on the other hand, continue to increase export volumes.

In general, Latvia’s processing sector demonstrated growth of 3.9% this March. In spite of the decline in the first two months of 2014, Q1 demonstrated growth of 0.3% in comparison with the same period of 2013.

It is also worth mentioning the most positive of recent news: two of the most important segments of Latvia’s national economy – food and wood processing sectors – demonstrated the highest growth. In comparison with March 2013, these two sectors of national economy demonstrated increase of turnover of 4.5% and 10.2% respectively in March 2014.

At the same time, however, Finance Ministry warns that approximately 54% of exports of food products are sent to Russia. Therefore, it is possible that there may still be decline in this sector. Wood processing industry, which exports goods mainly to Sweden, the UK and Germany, remain in a more beneficial position.

Metal processing and production sectors also show decline in production output – yearly decline is reported to be 79.5%. Experts note problems with the largest players in this sector – insolvency of Krāsainie lējumi and turnover declines of Dīlers.

Producers await demand to bloom in Europe

Clothes and textile producers also demonstrate negative growth rates: decline of these two sectors this March in comparison with that of 2013 was 17% and 1.6% respectively. The reason for depression is the current situation in the main export market – Russia.

Economic mood index (compiled by European Commission every month) has been growing since May 2013. This shows that entrepreneurs and residents remain optimistic. This mood allows experts to predict an increase of economic activity in the EU and, possibly, growth of external demand, which will undoubtedly positively impact production and export of Latvian goods. This trend is confirmed by the index of optimism of Latvian manufacturers, which is reported to have increased this April.

Consumers do not react to geopolitical events

Retail trade shows positive dynamics: a comparison of indexes for March of 2013 and 2014 demonstrates turnover growth of 3.8%. Experts from Finance Ministry believe the decline in the first couple of months can be explained with consumers being careful after the introduction of euro.

‘Following the continuation of economic growth, there was also an increase of tax collection in Q1 2014. This index complies with the planned level,’ – as reported by Finance Ministry.

Compared to the same period of 2013, the state budget’s revenue for Q1 2014 declined by 0.5%. Costs, on the other hand, increased 1.5%. Meanwhile, collected taxes had increased 5.4% during this period, and this index complies with the level planned by the Finance Ministry.

The largest increase in collected amounts is noted with VAT (EUR 48.1 million or 12.9%), real estate tax (EUR 18.4 million or 33.6%) and social insurance payments (EUR 19.4 million or 3.9%).

In general, Finance Ministry notes that the complicated geopolitical situation in neighbouring regions did not negatively impact state finances in the current quarter of the year. Nevertheless, the ministry has reduced the country’s economic outlook from 4.3% to 4.0%.

Debtors will not be allowed to do business

Legislators continue tightening regulations aimed at reducing shadow economy and improve tax collection.

Starting with July 1st, 2014, all persons that have debts before the state budget will be added to the list of suspicious (or risk group) persons compiled by the State Revenue Service. Those added to the list will no longer be able to use a long list of services provided by the Enterprises Registry. Among the list of restrictions is the prohibition on starting new commercial structure, adding notes to the commercial registry about existing enterprises and its officials.

Changes to legislation are provided by amendments to the Taxes and Duties Law that will come into force on July 1st.

Therefore, SRS will have the authority to add a person to the list if:

-the person has accumulated debts above EUR 7,000;

-the person or the organization the person is part of has tax debts worth more than EUR 15,000.

The regulation regarding the list of suspicious persons has been active since January 1st, 2014.


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