Government and business reach common ground on tax reform

The Latvian government and the social partners at the meeting of the National Trilateral Cooperation Council on June 29 agreed on introduction of a differentiated personal income tax.

It was agreed that the tax will be differentiated depending on the size of income. A 20% rate will apply to the annual income up to €20,000, and a 23% rate will apply to the annual income between €20,001 and €55,000.

The tax rate for those earning more than €55,000 is still to be negotiated as employers objected to the Finance Ministry's proposal under which high-income earners would be paying a 33.5% tax which employers consider too high.

Prime Minister Maris Kucinskis (Greens/Farmers) said they would be looking for a compromise on the subject at the meeting of the ruling coalition parties next Monday.

Under the earlier proposal, two personal income tax rates were to be introduced - 20% for the annual income up to €45,000 and 23% for the annual income higher than €45,000.

The National Trilateral Cooperation Council comprising representatives of the government, trade unions and employers also agreed on a zero tax on reinvested profit so that Latvian companies would remain competitive.

It is also planned to increase the minimum non-taxable income gradually. The minimum monthly non-taxable income for the income not exceeding €1,200 is to be raised to €200 in 2018, to €230 in 2019 and to €250 in 2020.

The minimum monthly wage will also be raised gradually from current €380 to €430, and tax credits for dependents will be increased as well.

The mandatory state social insurance contributions will be raised by one percentage point to ensure increase of the financing for health care.

As reported, previously the social partners criticized the government for digression from the tax policy guidelines approved earlier and withdrew their support to the planned tax reform.

The government will be discussing the bills related to the tax reform in two batches – on July 4 and July 11. After that the legislative proposals will be sent to the parliament which is expected to complete the work on those bills in late August or early September.

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