Higher tax revenue in Latvian municipalities this year than predicted

In 2021, revenues from the personal income tax (IIN) were 5% higher than expected, as reported by the State Treasury on December 27.

According to the 2020 Latvian Association of Local Governments (LPS) and Cabinet Agreement and Dispute Protocol, revenues from IIN in municipal budgets were projected to be EUR 1.33 billion this year. The agreement also provided that local governments are guaranteed income of IIN at 100% of the forecast, following a quarterly breakdown of 22% in the first quarter, 24% in the second quarter, 26% in the third quarter, 28% in the fourth quarter.

Information gathered by the Treasury shows that as of December 27 this year, EUR 1.39 billion has been credited to municipal budgets from IIN, which is 4.9% more than projected in 2020.

Next year, all municipalities will also receive a total of at least EUR 1.39 billion from the income of IIN, which is covered by the minutes of the agreement and disagreement between the Cabinet and the LPS signed in the autumn of this year.

While maintaining the current income tax ratio of 75% for municipalities and 25% for the State, the total increase in income after offsetting in 2022 is projected at EUR 52.3 million or 3.1% compared to 2021.

In order to support local governments with the lowest equalized per capita revenue (up to €800) and with the smallest revenue growth (below 3.1%), LPS and the Ministry of Finance agreed to prepare proposals for additional funding.

"Revenue from IIN forms an important part of the municipal budget: this money is further invested in critical functions of the local government, in development of the territory, as well as in the overall promotion of the well-being of the population. While we are continuing discussions on the need to increase the share of IIT in municipal budgets every year, LPS and the Ministry of Finance have agreed that the State undertakes on its part to guarantee local governments their income 100% of the planned forecast, thereby ensuring a balanced cash flow for all municipalities,” said LPS Chairman Gints Kaminskis.

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