Finance Minister: €14m needed to reach balance in tax reform

The projected state income from the proposed tax shake-up falls €14m short from being on par with expenses, said Latvia's Finance Minister Dana Reizniece-Ozola appearing on LTV March 28.

As before, the minister said that it will be difficult to balance expenses and income from the planned tax reform. The government is also "reviewing a small sidestep from the budget deficit", she said.

She specified that the mid-term structural deficit is at 1% of GDP, plus 0.4% for boosting healthcare funding. The total budget deficit for 2017 is planned at 1.1% or 0.2% up from last year.

Currently the tax shake-up is close to balancing incomes with expenses, with current deficit from the reform put at €13m to €14. The Finance Ministry is looking for ways to make up for the deficit, said the minister.

Previously Reizniece-Ozola said she's skeptical over increasing budget deficit for the reform, made for "improving competitiveness, making our residents more secure [..] and making our companies stronger."

The proposed shake-up is to reform labor taxes, introducing a personal income tax at 20% for income of up to €45,000 a year, and a tax rate of 23% on income above €45,000 a year.

The minimum wage should be raised to €430 a month, and the solidarity tax on high earners should be abolished.

The ministry proposes to apply 20% corporate tax on distributed profit.

The ministry explains that if at the moment a person receives €910.50 a month as a gross wage, it ends up as €641.30 as a net wage, while after the proposed labor tax reform, the net wage would amount to €680.90.

The Finance Ministry has proposed changes in capital tax, setting a 20% income tax on distributed profit, and 0% tax on reinvested profit.

The value added tax (VAT) should be retained at 21%. The ministry wants to start discussions on gradual increases of excise tax.

The ministry has also prepared proposals in relation to microenterprise tax. The ministry proposes to retain the microenterprise tax system, reducing the maximum turnover from the current €100,000 to €40,000 a year.

Meanwhile municipal budgets, expected to suffer from the reform, could be compensated by funneling a fixed percentage from the total tax income.

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