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Saturday 20.04.2019 | Name days: Mirta, Ziedīte

Researchers: income increase is the solution for prevention of inequality

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUThe main solution for preventing inequality among residents is increasing their income. This includes increasing minimum wages, as mentioned in a study on the influence of tax reform on taxpayers.

Researchers say the core of the tax reform’s idea was the thought of supporting low income recipients to guarantee them with the largest possible wages at the expense of tax benefits. However, it would be a more rational solution to maintain a specific non-taxable minimum for people whose annual income is under EUR 20,004. On the other hand, wealthy residents may not even require non-taxable minimum.

Researchers have concluded that it would be better to preserve the current system, reject gradual transition and speed up non-taxable minimum for small wage recipients.

«This way people would receive immediate benefits from non-taxable minimum, whereas benefits from differentiated minimum would be secured in the form of personal income tax returns,» the study mentions.

Researchers believe PIT application system should be used to support employed people more widely, because working people are the ones who generate added value for the economy. Because of this reason, authors of the study propose also reviewing extension of eligible expenditure and benefits, as well as widen PIT discount use, as it is done in neighbouring countries.

The study also recommends a different approach to make sure labour force tax system becomes fair and equal. This proposal would help prevent formation of PIT debt. Unfortunately, it does not resolve the main problem – use benefits provided by the state to their full extent in cases when taxable income is too small.

Researchers also note that it is necessary to finish work on establishing basic principles for minimum income level, because this would ensure an opportunity to set non-taxable minimum to a specific index, as well as perform timely and adequate corrections.

The study compiles a total of 23 major recommendations for the government. They are divided in to two blocks. According to Ombudsman Juris Jansons, one half of recommendations will not require any major manoeuvrers, whereas the other half will require reorganization of regulations.

The ombudsman has sent a letter to the Cabinet of Ministers, urging members of the government to have a look at the study and its conclusions. «I hope conclusions of this study will serve as a reason for legislators and the government to start working to introduce specific changes to the tax system before the government approves the three-year tax system’s non-review period. The ombudsman’s office and researchers of the University of Latvia are open to discussions and cooperation,» the letter mentions.

On Wednesday, 27 February, the ombudsman told journalists that the tax system failed to achieve its main goal – reduce inequality. He also said officials kept quiet about a number of different problems.

The more dependents a person has, the less they benefit from the tax reform, LU researcher Līga Leitāne told journalists.

She stressed that one conclusion made in the study that the tax reform offers only supposed benefits, additionally, applying different monthly non-taxable minimum with respect of the previous period’s income results in debt or overpayment for residents depending on the number of dependents.

In 2018 Latvia adopted increased non-taxable minimum. Authors of the study have compiled several examples on the influence of changes on representatives of different professions depending on the number of dependents they have.

According to data compiled by researchers, people with the lowest income and dependents are put in the worst possible situation.

The ombudsman stresses that the study proves that Latvia not only drowns in poverty but its politicians have also created conditions making sure people are unable to escape it.

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