Latvian central bank proposes cutting personal income tax as part of reforms

For law-abiding taxpayers in Latvia, the tax burden is too heavy and tax rates in some areas are too high, the Bank of Latvia said as it unveiled a comprehensive tax reform plan on Monday.

The Latvian central bank proposes cutting the personal income tax rate by three percentage points to 20 percent, to reform the existing corporate tax system and to reverse-charge value added tax (VAT) more extensively.

Since different tax rates on various types of income encourage tax evasion, the Bank of Latvia proposes to make the tax burden more balanced.

The current tax system in Latvia is too complicated and should be simplified, the central bank said.

The proportion of tax revenue against Latvia's GDP is relatively low, largely because of the high share of the grey economy, which have to be combated more actively, the Bank of Latvia said.

The strategy offered by the Bank of Latvia is generally consistent with the tax proposals worked out by the leading Latvian entrepreneurs' organization. The Latvian Finance Ministry is said to have included the entrepreneurs' proposals in its draft tax policy guidelines, which the ministry is set to present on Tuesday.

The main tax measures proposed by the Bank of Latvia include the three-percentage-points reduction of the personal income rate, from 23 percent to 20 percent; exempting reinvested profit of income tax; reverse-charging VAT more widely without raising the VAT rate; evening out excise tax rates which on some products are too low; revising the property taxation system and making the tax system simple and stable.

The Bank of Latvia projects tax revenue to grow by 700 million euros (741 million U.S. dollars) as a result of the proposed reforms. Endit