Tax policy changes could increase burden on low-wage employees in Latvia

People with low wages and those working in one of the special tax regimes will be required to pay more in taxes as result of the new tax policy planned, Latvian Television analytical broadcast De Facto reported September 13.

The tax changes aim to bring labor taxation closer to Lithuanian and Estonian levels, while at the same time limiting micro-enterprise and other alternative tax regimes. Those who have so far been allowed to pay less in taxes.

The Ministry of Finance is proposing to return to its 2016 plan for minimum social contributions . Regardless of the tax regime, a social tax of at least EUR 170 should be paid for the worker.

"The months in the crisis [COVID-19] showed obvious problems with social contributions for some groups of employees. This was one of the reasons why the Ministry directed this minimum social contribution,” explains the Finance Minister's Councillor Ints Dālderis (“New Unity”).

According to the State Revenue Service, for each third employee, social contributions are now lower than those paid from the minimum wage, which means that the tax for them will rise.

Most socially vulnerable workers work in the general tax regime. These could be part-time workers, for example.

Social Policy expert Ruta Zilvere believes that it is right to align different tax regimes by bringing social contribution rates closer, but it is wrong to ask for more in tax than workers earn.

“There are people - low-skilled or low-wage people - who need part-time work because there is no full-time job, this is quite common in rural areas, especially in Latgale, or a person at some point of his life simply needs a low-load job,” said Zilvere.

If social contributions are to be paid from a fixed minimum, the tax burden on the low-wage sector actually becomes regressive, meaning that those workers pay a higher percentage of their income than the better-paid ones.

Politicians do not give a clear answer to how to pay the mandatory social tax if the income is not so high.

“In our neighboring countries, which have also recently introduced such things, jobs are consolidated so that every job is worth at least the minimum wage. It's already a matter of work organisation,” Dalderis said.

The Ministry of Welfare is currently still thinking about allowing certain groups not to pay a monthly minimum social tax of EUR 170. It is almost certain that students, pensioners and prisoners will avoid it.

There is not yet a full consensus among government parties on all tax changes.

 

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