The Finance Ministry sent the blueprint of the national tax policy framework 2018-2021 to all line ministries, as well as social and other partners. The ministry expects findings to come in by April 24, so that the draft document can be put before ministers at an extraordinary government meeting slated for April 28.
As reported, the tax reform proposed by the Finance Ministry provides for cutting personal income tax rate from 23% to 20%, scrapping solidarity tax and leaving microenterprise tax in place.
The 20% tax rate would be set on personal income that does not exceed €45,000 a year, and a 23% tax would be charged on income exceeding €45,000 a year. The differentiated nontaxable minimum income would be significantly increased.
The minimum monthly wage would be raised to €430 from €380, and the nontaxable minimum income for pensioners would be raised to €300 from €235. The ministry also proposes allocating 1% of social security contributions to the health sector.
As a result of the tax reform, the annual turnover ceiling for microenterprises would be lowered to €40,000. The monthly wage limit for employees working at microenterprises would be raised from €720 to €900.
The tax reform also calls for fixing the system of properties’ cadastral value, raising gambling and excise taxes, setting restrictions on tax refunds and stepping up the clampdown on shadow economy.
The Finance Ministry has been working with partners on tax reform proposals for more than a year already. In the process, proposals were received from the Latvian Chamber of Commerce and Industry, the Latvian Employers Confederation, the Bank of Latvia, Certus think tank, as well as the World Bank and the Organization for Economic Co-operation and Development (OECD).
The proposals included in the national tax policy framework 2018-2021 have been approved by the National Tripartite Cooperation Council, which brings together representatives of the government, entrepreneurs and trade unions, or the steering group for tax reforms chaired by Prime Minister Maris Kucinskis (Greens/Farmers).
In the medium-term, the planned tax reform is intended to reduce the tax burden on labor, even out the rates of other taxes, reform the taxation of corporate income, lift solidarity tax and put cups on mandatory social security contributions.
The goal of the tax reform is to promote competitiveness on the regional level, motivate people to start their own businesses and pay taxes, as well as invest in business development. The reform is also expected to stimulate economic activity, encourage jobless people to return to the labor market and ensure that the tax payment and control system is as simple and inexpensive as possible. The income tax reform is expected to have a positive effect on lending, which in turn might stimulate private consumption and investment.
The reform is also expected to provide a predictable tax system until 2021.
Since revenues from taxes on labor are projected to decrease as a result of the reform, compensatory measures are being planned to shift the tax burden from labor to consumption and capital.