Latvian government coalition scraps minimum social tax requirement

Latvia's government coalition on Wednesday yielded to entrepreneurs' pressure and agreed to scrap its plan to introduce minimum social insurance contributions that since next year would also have been charged on people earning less than the minimum wage.

To compensate for this, the tax rate on Latvia's microenterprise taxes would be raised to 15 percent from the current 9 percent under the new regulations, proposed by the coalition leader, the Greens and Farmers Union.

Andrejs Vaivars, a spokesman for Latvian Prime Minister Maris Kucinskis, said that taking into consideration the objections raised by entrepreneurs and non-governmental organizations, the ruling coalition agreed not to introduce the minimum social contributions in 2017.

The measure is not expected to affect budget revenues, as the raising of the microenterprise tax from 9 percent to 15 percent would provide additional income, Vaivars said.

Although the coalition has agreed to work out new legislative amendments based on the new proposals, one of the coalition partners, the Unity party, was rather reserved about the new tax initiative on Wednesday.

Edvards Smiltens, an MP of the Unity party, told reporters that his parliament faction needed more detailed information about the new plan and its possible impact on Latvia's 2017 budget. Unity, however, did not reject the prime minister's proposals altogether.

"We are constructively disposed and want to help the prime minister deal with this chaos," Smiltens said.

Finance Ministry representative Edgars Putra said on public radio that while Unity was taking a pause, the right-wing National Alliance had already backed the new tax proposals.

The Latvian Chamber of Commerce and Industry, which has been among the most vocal opponents of the social contributions requirement, said it would welcome its scrapping, but if the tax rate for microenterprises is raised, it is essential to make sure that this tax hike is reasonable.

Under the previous plan, which was adopted in 2015, all working people in Latvia, including part-time employees and those earning less than the minimum wage, would be required to pay 97 euros (104 U.S.dollars) a month in mandatory minimum social insurance contributions from 2017. Endit