It seems that the tax reform announced in March by the Ministry of Finance and by the Bank of Latvia would not become a regular pre-election show, which, as usual in Latvia, fizzles out.
The Government has seriously got to streamline the taxation system and, as judged by enthusiasm of ministers, from the new year we would start living in a new tax reality.
A good idea, which includes reduction in individual income tax by three percent point and reduction of corporate income tax to zero in case of profit investment in development, - this is great. The bad side is that the hole appeared as a result of the reform is to be amortized by broad strata of Latvian taxpayers.
To compensate for loss of income to budget it has been already decided to increase excise taxes on fuel, cigarettes and alcohol, and to increase gambling tax.
And what about competitiveness of Latvia in the regional market? They assure at the Ministry of Finance that colleagues from Lithuania and Estonia would not avail of increase of Latvian taxes. Opposite, Tallinn and Vilnius are also planning to raise excise tax.
According to the state economists, even if the duty excise in Latvia does not increase, the prices would still rise, because, by taking advantage of the situation, the prices would be raised by the trading enterprises. So, only the State budget would be the loser, but the benefit from such situation would be gained by the merchants.
Controversial logic. It is incomprehensible, why business would surely raise prices. Maybe they’d rather prefer to earn through the growth of turnover? This, by the way, already takes place near the Latvian and Estonian border – increase in fuel and alcohol excise in Estonia resulted in mass pilgrimage of Estonians to Latvian fuel stations and spirits sections of near – border supermarkets.
But such arguments would not stop the Ministry of Finance. With a high probability, one can assume that the decision on tax raise would come into force already next year.
The Latvian population will pay for the tax reform in the following way: it is assumed to raise the excise duty on benzene from 1st January 2018 by 7.8%, on diesel fuel – by 11%. It is planned to raise the rate of excise duty on cigarettes from 1st July 2018 by 5.5%. The excise duty on wine will be raised from 1st March 2018 by 18%, on beer — by 24%, on other alcoholic beverages — by 15%.
So, the Latvian reform will be paid by smoking car drivers, who after driving are fond of the bottle. However, such people in Latvia might appear in the number insufficient to compensate for the drop in revenues of the state budget, which during the first year of the reform might make up 50 to 100m euro. Therefore, non-smoking sober pedestrians should not relax. The ministers – reformers might reach them as well.