Tax reform hangs on European Commission decision, says MP

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The upcoming tax reform hangs on the decision by the European Commission and will have to be scaled down should Latvia is not allowed to increase its budget deficit, said MP Augusts Brigmanis, head of the Union of Greens and Farmers' Saeima group. 

"The signals given by our EU supervisors will be very significant for the reform," said Brigmanis in an interview with Latvian Radio on May 19. 

"I think the big question is the scale on which they'll allow increasing the budget deficit, and for what purposes we'll be allowed to use the raised part of the deficit," he said.

Should the commission deny Latvia the extra fiscal space, the reform would have to be scaled down, said Brigmanis, who also used the interview to propose that money for healthcare could be obtained by increasing the social security payments paid by the residents. 

The European Commission is due to produce a decision on whether to allow Latvia increase its budget deficit to about €170m next week. 

A tax shake-up by the Finance Ministry proposes to reform labor taxes, introducing a personal income tax at 20% for income of up to €45,000 a year, and a tax rate of 23% on income above €45,000 a year.

The minimum wage should be raised to €430 a month, and the solidarity tax on high earners should be abolished.

The ministry proposes to apply 20% corporate tax on distributed profit.

The ministry explains that if at the moment a person receives €910.50 a month as a gross wage, it ends up as €641.30 as a net wage, while after the proposed labor tax reform, the net wage would amount to €680.90.

The Finance Ministry has proposed changes in capital tax, setting a 20% income tax on distributed profit, and 0% tax on reinvested profit.

The value added tax (VAT) would remain at 21%.

The ministry has also prepared proposals in relation to microenterprise tax. The ministry proposes to retain the microenterprise tax system, reducing the maximum turnover from the current €100,000 to €40,000 a year.

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