New state accounting system used by just a handful of businesses

Last October, the State introduced a new service for micro-enterprise taxpayers, an account for commercial activity revenues. This allows all obligations with the country to be sorted automatically without additional human control. In nine months, only 114 customers have opened an account, Latvian Television reported June 29.

The idea of the system is to make it easier to tax payments with the country for micro-enterprise taxpayers who don't pay value-added tax. The principle is simple – opening an account, notifying the State Revenue Service (VID), and that's it – no taxes should be calculated or reported because everything happens automatically.

However, it should be borne in mind that there is no choice at which bank the account is opened. It is provided only by Industra Bank. 

For musician Ivars Auzāns, this account came as a lifesaver.

"Yeah. Within two working days, the VID checks all my income and expenses. They deduct those 25%. And there's already clean money coming into my account, with which I can act and work, I have nothing more, no obligation to the state, no tax," Ivars Auzāns explained the benefits.

Despite the benefits, the service isn't particularly popular. There are only 114 account users in less than nine months.

Board member of the Industra Bank, Jānis Diedišķis, said that EUR 50,000 had been invested in the development of the system, while only a tenth had been earned back.

The State paid EUR 800,000 for the introduction of the account. The State Revenue Service would like other banks to show concern for small entrepreneurs.

“One bank provides this service, which is not enough. We would be pleased if other commercial banks provided such opportunities and services,” said Ilze Jankova, deputy director of the VID Tax Office.

The Finance Latvia Association, which was actively involved in the development of the economic activity account, pointed to two fundamental errors. First of all, this applies only to micro-enterprise taxpayers, of which there are only 9,000 in the country, but a wider scope was expected, including the beneficiaries of royalties, of which there ar more than 35,000. Secondly, in the banks' opinion, the accounting system itself is non-standard and therefore expensive.

“It is therefore necessary to go back to the idea of a wider scope [..], and/or think about the inclusion of new tax setips in this business revenue account,” said Edgars Pastars, spokesman for the Finance Latvia Association.

At present, micro-enterprise taxpayers earning €25,000 a year have a 25% tax rate. If you earn up to €40,000, 40% goes into taxes. The VID would like to introduce a single rate, while the Ministry of Finance considers the possibility of raising both these income thresholds.

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