World Bank auditors say tax system doesn't reduce inequality

World Bank experts have been auditing Latvia's tax policy for about a month and have established that there's high inequality after paying taxes, reported Latvian Radio's Māris Klūga.

The first preliminary report was shown to the Saeima Budget and Finance Committee Tuesday.

"The World Bank has been asked, in this reasearch, to evaluate important aspects of Latvia's tax system, like how its efficiency and competitiveness could be improved, how income could be increased, and [to evaluate] elements of fairness within the tax system," said deputy State Secretary of the Finance Ministry Ilmārs Šņuciņš.

"And then it'll be the task of the Latvian government to decide over the mid-term tax policy based on the [experts'] analysis," he said.

Emily Sinnott, a senior economist at the World Bank, said that Latvia's tax system doesn't reduce inequality, especially in the case of those who receive smaller wages.

"Inequality in Latvia is quite high compared to EU countries," said Sinnott.

She said that the fiscal policy in Latvia does not reduce inequality as much as it does in other countries. However comparing to countries outside Europe inequality isn't as pronounced.

Another aspect of inequality in Latvia, according to Sinnott, is that the tax burden is very high on people with low levels of income, especially on single people without children.

The bank will be carrying out simulations showing how the tax burden changes depending not only on the household type but also level of income, she said. 

Lowering inequality is one of the things the Finance Ministry has asked researches to analyze. Experts will also have to evaluate how to shrink the shadow economy, increase income and retain the tax system's competitiveness.

The first interim report will be presented by World Bank experts in June. While the second report, to be published December, will offer suggestions in reducing the shadow economy as well as changing the social contributions ratio paid by employers and employees. 

Latvia has commissioned World Bank experts to carry out an audit of Latvia's tax system for €300,000. The government plans using the results of the research both for working on the 2017 budget and planning the mid-term tax policy.

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