Ministers in a muddle over reduced VAT idea

The working group of the Minister of Finance Jānis Reirs (New Unity) does not support the introduction of a reduced value added tax (VAT) rate of 5 percent in the hospitality sector, Minister of Economics Janis Vitenbergs (KPV LV, pictured) said May 13.

He noted that the Economy Ministry will consider new proposals to support the tourism industry in the post-crisis period.

Meanwhile, the Finance Ministry told LETA that it has not turned down anything, and stated that it listened to the Economy Ministry's proposal to apply a reduced VAT rate to the tourism and hospitality sectors, and agreed that this proposal will be considered when reviewing the overall tax system, not separately.

The Ministry of Economics previously submitted to the working group chaired by Reirs a proposal to introduce a reduced VAT rate of 5 percent for the catering and accommodation sectors for three years.

The ministry pointed out that in Latvia the VAT rate for catering services is 21 percent, which is the second highest rate in the European Union (EU). At the same time, from July 1 this year, Germany will reduce the VAT rate on catering services from 19 percent to 7 percent, while Lithuania is considering reducing the VAT rate on catering services from 21 percent to 9 percent, and Estonia is discussing a reduced VAT rate of 9 percent for catering companies.

At the same time, the VAT rate for accommodation services in Latvia is 12%, while in most European Union countries reduced VAT rates are being applied, including Lithuania and Estonia, where the VAT rate for accommodation services has been reduced to 9 percent.

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