Justice Ministry: real estate tax must fall before property value grows

The Ministry of Justice told Latvian Radio on July 27 that real estate tax would be reduced before the new cadastral values for property come into force. Amendments to the law would come over the next two weeks.

In October 2019, the Justice Ministry proposed the abolition of real estate tax for primary housing if its value does not exceed EUR 100,000. At the same time, cadastral values of property were to be re-evaluated. This sparked a political debate, since changes in cadastral value could mean an increase in real estate tax.

Cadastral values are officially set property values that are updated automatically each year, taking into account such variables as the location of the property and its use. At the beginning of 2022, the cadastral value of most of the properties in Latvia will grow. This means that real estate tax can also rise, in some cases substantially. So far there has been no consensus in the coalition on possible solutions. Cadastral values designed to be introduced for 2022 have been released for public consultation.

Justice Minister Jānis Bordāns (New Conservative Party) promised not to allow the new cadastral values to take effect until the real estate tax rates have been revised, including the abolition of real estate tax for primary housing of up to EUR 100,000.

On the other hand, a reducing factor of 0.2 could be offered for property with value above EUR 100 000.

Thus, the tax would also be five times lower.

“In the draft law, we propose that tax is calculated not from the full cadastral value but from a special value of one fifth, or 20% of the cadastral value. If the land has a cadastral value of EUR 10 thousand, the tax base from which the tax is calculated is EUR 2000, not EUR 10 thousand, as is the case at present. During the conciliation, we tended to exclude special value but, in the case of primary housing, to reduce the rate from 1.5 to 0.3. The final result is the same. Fiscal impacts are exactly the same,” said Head of Bureau for Justice Minister, Aldis Bukšs.

Although the Ministry of Finance has so far stressed that the reduction of cadastral values must first be achieved and only then can it be thought of changing the calculation of the real estate tax, the Ministry of Justice has said that changes are needed first in order to calculate the tax.

The rising tension seemed to be relaxed by the Prime Minister Krišjānis Kariņš, who said on Twitter on Friday:  “In order not to increase population spending when cadastral values change, real estate tax should be reduced. They will be reviewed before the new cadastral values take effect."

 

 

Justice Ministry speculates that these amendments be reviewed over the next two weeks.

 

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Economy
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