Latvian tax legislation is very good. But confusing and inconsistent.
What to talk about if even the newly elected head of the State Revenue Service (SRS) Ilze Tsirule admitted that she did not understand the letters that SRS employees write to the clients.
Each year begins with the entry into force of new legislative norms. Which in itself is normal. It is not normal that voluminous and various changes fall on the heads of Latvian inhabitants and enterprises without necessary explanations and instructions for their application.
This year has began with an intricate law on the microenterprises tax. In December, more discussions were about what another tax could be imposed on microenterprises and not how to support them and promote their development. As a result, at the last moment the Government stepped back while the taxpayers were in the skin of a dog whose tail was cut piece by piece - cruelly and painfully.
This is not even about the amount of the tax rate or about preservation of such business form as a microenterprise in the future. The point is that in the Parliament and the Government an important decision concerning the work of tens of thousands of the country residents is adopted in an opaque, unpredictable manner and at the last minute.
The results were not long in coming. From 01 November 2016 to 01 February 2017, the number of microenterprise taxpayers in Latvia decreased by 6,279. How many of them escaped to the gray tax area? And how many left Latvia at all? It is not known. But it is known that the country loses employees and increases the share of shadow economy due to the lack of a predictable and coherent tax policy.
Confusion in the minds of lawyers and accountants was aroused also by changes in the law “On Value Added Tax” having come into force with 01 January this year. The declared goal is noble: to overcome VAT fraud and evasion of VAT payment.
Theoretical justification for VAT changes and valuable guidance to their application are also quite logical: in order to reduce additional tax deductions and the risk of penalties, taxpayers should now carry out the risk assessments, including verification of suppliers; to draw a special attention to the quality of concluded contracts, commodity papers and other supporting documents ...
Sounds well. However, it is not clear how to implement it in practice. Who and how will control the transactions, assess the risks, carry out the examination of documents? Where will small firms get financial and human resources to implement new amendments to the VAT law? Who will quickly and intelligently explains the missing or equivocally interpretable provisions present in the law? No answer.
No surprise if plague among microenterprises caused by legislative turmoil will spread also over VAT payers.