Chamber of Commerce sees shadow economy risks in heating aid system

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The government-supported aid for households in energy price inflation includes a possibility to claim one-off aid even if there is no proof of purchase of heating materials. Latvian Chamber of Commerce and Industry (LTRK) said in a statement August 11 that this system is questionable and could stimulate shadow economy.

Due to the rapid increase in energy prices, the aid mechanisms provide for a partial increase in compensation for citizens, including those who have bought firewood in advance, but no proof of purchase has been kept. At the meeting of the Government on 9 August, the proposal was approved, stipulating that a one-off aid of EUR 60 would also be applicable to the purchase of wood since May 1, 2022 even if it does not have a document of proof.

The LTRK stated that it supports solutions to compensate for the increase in energy prices for households, but they must not be an incentive for shadow economy and unregistered business activity. The association pointed to the still high share of shadow economy in Latvia – 26.6% of GDP in 2021.

LTRK pointed to estimates that there are a total of approximately 250,000 households and other heating objects in Latvia where wood is used as fuel. Since the government agreed to support EUR 60 for each such household, the total costs would be estimated at around EUR 15 million, some of which could come to support non-taxpayers.

"There is a need to find reasonable solutions to the increase in resources, but the use of public budget resources must be efficient and effective, ensuring that there will be no waste of public budget resources. The information currently available does not indicate that the administration of such aid would be thought through and without risks promoting shadow economy activities from State budget resources," LTRK board member Jānis Lielpēteris was quoted in the statement.

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