Latvia confirmed the reduction in tax in 2012-2015

22.05.2012 Recently Saeima of Latvia almost unanimously approved amendments to the tax legislation proposed by government reducing the value added tax (VAT) and the personal income tax in the first reading.

The bill stipulates that the VAT rate will be reduced from the current 22 percent to 21 percent on July 1 2012, whereas personal income tax will slowly go down within three years from 25 percent to 20 percent. Next year its rate will be reduced to 24 percent, in 2014 – 22 percent, in 2015 - 20 percent.

The Finance Ministry states that the goal of the tax reform is to ensure that labor taxes in Latvia are similar to those in Estonia and Lithuania. In 2013 as a result of the personal income tax reduction the revenues, increasing the budget, will be decreased by 47 million euros, in 2014 – by 139 million euros, in 2015 – by 246 million euros.

The experts have mixed feelings about the measure introduced by government, pointing out that it is aimed at shot-term reduction of the rate of inflation, what formally allows Latvia of accession to the European area.

Expert’s opinion

“Recently almost all the countries of the European Union have increased the value added tax rate. Latvia, leaving the same rate of the corporate tax, on the contrary reduced the personal income tax.

But all in all the reduction in tax for individuals is certainly regarded as a positive practice. The personal income tax in Latvia was one of the highest among Baltic States. Nonetheless, the rate of inflation keeps growing and it is not excluded that the VAT is being reduced in the country in order to access to the Eurozone.”

On the basis: http://www.saeima.lv/en

Irina Lomakina ( Director of the Moscow office of Honest & Bright)