Progressive tax not possible now, says Economics Minister

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Despite the forthcoming changes to the tax system, to be proposed by the government by April 1, stipulating that Latvia's tax system should be made progressive, Economics Minister Arvils Ašeradens thinks such a solution is currently impossible in the country, reported LTV7

"I do not see the possibility for introducing a progressive tax, even though it was recommended by the World Bank, the European Commission and the OECD," said the minister.

He argued against the progressive tax due to the high proportion of the shadow economy.

"We know that there's a lot of money in the 'grey zone'. And the following situation arises: people who receive high wages officially are ready to pay more taxes but want it to be spent purposefully," said the minister.

"But what about the people who declare their monthly income as €112, pay a €40 tax but receive more than a thousand in an envelope? It calls forth a sharply negative reaction, and that's why the shadow economy should be tackled first," said Ašeradens.

The minister remains sure, however, that Latvia's tax system will become progressive sooner or later. According to the minister, it won't be as bad as people often limn it, because higher taxes will be applied only to the part of the income over a certain threshold. 

As reported, late last year international organizations suggested several changes to Latvia's tax system, such as reforming the micro-enterprise tax and broadening the tax base so that low earners carry less of a tax burden.

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