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Wednesday 19.09.2018 | Name days: Verners, Muntis

Saeima agrees upon Personal Income Tax cuts

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Thursday, May 24 the Saeima almost unanimously votes for amendments to the Law of Personal Income Tax (PIT) in the final reading; according to the amendments, the personal income tax rate will be reduced from 25% to 24% in 2013.

The amendments provide that the PIT rate will be 24% from January 1, 2013, and then be reduced to 22% in 2014 and 20% in 2015.

The goal is to ensure Baltic States competitiveness in terms of investments and to make sure that labor taxes in Latvia are similar to those in Estonia and Lithuania, lower taxes are also hoped to reduce poverty and structural unemployment risks, as well as tax evasion, as the Ministry of Finance explained earlier.

The calculations of the Ministry of Finance show that reducing PIT by one percentage point in 2013 will leave the budget with LVL 33.2 million less in revenue.

As a result of the reduction of the PIT, state budget revenue in 2014 will reduce LVL 98.1 million, and LVL 173.3 million in 2015, as the Ministry of Finance predicts.

When deciding on the reduction of PIT, the Saeima did not support the proposal of deputy Vladimir Reskajs (HC) about PIT reliefs for young people without work experience. Reskajs explained to the deputies that the goal of his proposal is to motivate businessmen to employ young people without previous work experience. It would also be a signal to society and young people that the state supports them and hopes they stay in the country. Keeping in mind that Reskajs’ proposal was not supported, he asked every deputy to help resolve the unemployment problem among young people.

Some other proposals from the opposition about more coulourful tax reductions as well as about the increase of the tax-free allowance were also declined.

Deputy Karlis Serzants (GFU) proposed to reduce PIT by 3% next year, and do the same in the next two years, thereby making PIT rate 16% in three years’ time, instead of 25%.

Meanwhile, deputy Janis Ozolins (RP) said, while commenting on the proposal of the Greens’ and Farmers’ Union (GFU), that they remind him of a reality show, because GFU deputies warned everyone during the previous Saeima meeting that PIT reduction would be disastrous to local governments and will mean nothing to residents. Ozolins believes that PIT reduction from 25% to 20% is a timely decision for Latvia’s economy.

The proposal of Ivars Zarins (HC) about increasing tax-free allowance to 60 LVL and to 100 LVL in 2014 was also declined by the Saeima.

The Saeima also declined the proposal providing for decreasing PIT rate, but not decreasing local government income in response. The head of the Saeima Budget and Finance Commission Janis Reirs (U) points that it is not necessary to support this proposal, because the Ministry of Finance is tasked with ensuring that PIT reduction does not create losses to local governments, therefore the proposed principle is already in play. Also, in order to file in a budget draft to the Saeima it needs to be verified by the Latvian Association of Local Governments, Reirs adds.


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