Latvian Supreme Court asked to rule on disputed rich people's tax

Twenty individuals and nine companies have filed an application with the Latvian Supreme Court, asking it to abolish the so-called solidarity tax charged on the highest-paid employees' salaries.

The Latvian Chamber of Commerce and Industry (LCCI), which initiated the lawsuit, argued the solidarity tax contradicted the government-approved economic growth strategies.

The LCCI also noted the solidarity tax breached Latvia's international agreements on the prevention of double taxation and that it deterred foreign entrepreneurs from investing in Latvia, whose international reputation had also suffered as a result.

The entrepreneurs' organization claimed the solidarity tax was undermining Latvia' s competitiveness in the Baltic high-salary segment. In fact, Latvia was short of highly-paid professionals who not only pay more in taxes but also have stronger purchasing power than the average consumer, it argued.

"The one who earns more typically spends more as well, thus stimulating the whole Latvian economy and wage growth. We need to work to increase the number of such high earners," said LCCI chairman Janis Endzins.

Defending the need for the solidarity tax, Latvia's former finance minister Janis Reirs said earlier the tax was intended to reduce inequality, but the LCCI said the high earners were already paying large sums in taxes and that the solidarity tax would only increase the shadow economy as entrepreneurs had to think of how to cut costs.

The number of employees who should be paying the solidarity tax has dropped by 30 percent in Latvia, Endzins said, adding the tax would therefore fail to provide the expected budget revenue, while Latvia had meanwhile lost highly professional people.

Effective on Jan. 1, 2016, the solidarity tax is charged on the part of high-paid employees' salaries that exceed the ceiling for mandatory security contributions. Endit