Latvian study shows digital tax could yield 17-30 million euros per year

A study estimates that the Latvian state budget could gain an additional 17-30 million euros per year by implementing a 3% digital services tax, according to a Latvian Radio broadcast on January 16.

A necessary tax

Consumption of television, newspapers and other traditional media is increasingly declining, while mobile device use is increasing. Latvian Advertising Association Chair Baiba Liepiņa points out that companies such as Facebook and Google use their technological advantages to reach audiences everywhere while using Latvian resources, or the people who live here.

“It would only be fair if they had to pay some sort of tax for the advertising they attract and profits gained,” said Liepiņa.

Politically, Saeima Human Rights and Public Affairs Committee Chair Artuss Kaimiņš (independent) supports such a tax, but opposition MP from the same committee Boriss Cilevičs (Harmony) still sees arguments for and against.

“The international, or supranational industry is too powerful for it to be regulated at the national level. Even European Union regulations don't work in many cases. The way it's presented at the moment seems a bit artificial,” said Cilevičs.

Estimated turnover

The Primus Derling law office conducted the study about implementing a digital services tax in Latvia upon request from the Ministry of Culture. The tax is something the Organisation for Economic Co-operation and Development (OECD) and EU have already begun to discuss. Reaching a consensus has proven to be difficult. France, Italy and Austria have already implemented such a tax, while the UK plans to do so in April of this year.

”It's essentially a tax on turnover. That means that this tax isn't paid by residents or consumers, but the large corporations specifically, which work in the respective markets, pay,” said law office tax consultant Ingūna Ābele.

The study estimates that the size of the Latvian market for these digital giants is around 100 million euros, when looking at 2018 data on seven large companies including Google, Facebook and Booking.com. For the first 10 months of last year this amount already reached 113 million euros, according to Ābele. The study authors suggest that the tax profits could be used to support Latvian media in content creation.

At the same time the study also points to legal risks, such as double taxation, and suggests that such a tax would only be a temporary fix until the OECD or EU tax is implemented.

As previously reported, the Ministry of Culture released information on November 26, 2019 that it is considering several courses of action in response to Prime Minister Krišjānis Kariņš' (New Unity) request for a vision and concrete proposals for strengthening the integrity of the Latvian information space.

The ministry points out that with the increase in spending on digital and foreign platforms, Latvian media regulations no longer have the intended impact. The regulations aren't effective in limiting the advertising of certain products and services, and put local media at a disadvantage.

The courses of action include reviewing individual advertising restrictions for media, as well as a discussion around a possible so-called "digital tax". The ministry also suggests reviewing the regulations concerning consumer protection, which restrict credit service advertisements and the advertising income for media registered in Latvia.

Taking into account that advertising is important for generating revenue to cover local content, the ministry says it's necessary to create advertising restrictions that correspond to the changing media environment and promote fair competition. This would allow Latvian content creators and distributors to compete in a global market.

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