The first scenario provides for the introduction of a fixed non-taxable minimum from the first year and a more progressive application of personal income tax rates (PIT). Under this scenario, the impact of first-year changes as a percentage of projected 2024 revenues is minus 4.2% (-€114.3 million). The cumulative impact as a percentage of projected revenues in 2024 is minus 9.4% (-€255.3 million).
The second scenario, proposed by the Latvian Union of Free Trade Unions (LSFTU), provides for the introduction of a fixed non-taxable minimum from the first year and a more progressive application of PIT rates. Under this scenario, the impact of first-year changes as a percentage of projected 2024 revenues is minus 9.5% (-€257.7 million). The cumulative impact as a percentage of projected revenues in 2024 is minus 14% (-€379.6 million).
The third scenario provides for the gradual introduction of a fixed non-taxable minimum over five years and an increase in the second rate of personal income tax with a simultaneous increase in the thresholds for the application of personal income tax. Under this scenario, the impact of first-year changes as a percentage of projected 2024 revenues is minus 3.3% (-€88.8 million). The cumulative impact as a percentage of projected revenues in 2024 is minus 24.5% (-€663.5 million).
The fourth scenario provides for a differentiated increase in non-taxable minimums and the second PIT rate with a simultaneous increase in the thresholds for the application of PIT. Under this scenario, the impact of first-year changes as a percentage of projected 2024 revenues is minus 2.5% (-€67.8 million). The cumulative impact as a percentage of projected revenues in 2024 is minus 6.5% (-€176.5 million).
In turn, the fifth scenario proposed by the LSSP provides for a differentiated non-taxable minimum and an increase in the second PIT rate with a simultaneous increase in the thresholds for the application of PIT. Under this scenario, the impact of first-year changes as a percentage of projected 2024 revenues is minus 5.4% (-€146.3 million). The cumulative impact as a percentage of projected revenues in 2024 is minus 10.5% (-€295.6 million).
The sixth scenario assumes the introduction of a fixed non-taxable minimum gradually over five years while maintaining other indicators unchanged. Under this scenario, the impact of first-year changes as a percentage of projected 2024 revenues is minus 3.3% (-€89.7 million). The cumulative impact as a percentage of projected revenues in 2024 is minus 23.5% (-€636.1 million).
The seventh scenario involves the gradual introduction of a fixed non-taxable minimum over five years and an increase in the threshold for the use of personal income tax. Under this scenario, the impact of first-year changes as a percentage of projected 2024 revenues is minus 3.3% (-€88.8 million). The cumulative impact as a percentage of projected revenues in 2024 is minus 24.9% (-€673.5 million).
The eighth scenario provides for the gradual introduction of a fixed non-taxable minimum of 500 euros over five years while maintaining other indicators unchanged. Under this scenario, the impact of first-year changes as a percentage of projected 2024 revenues is minus 3.7% (-€100.8 million). The cumulative impact as a percentage of projected revenues in 2024 is minus 16.9% (-€456.5 million).
The ninth scenario provides for the introduction of a fixed non-taxable minimum of 500 euros gradually over five years and an increase in the threshold for applying PIT. Under this scenario, the impact of first-year changes as a percentage of projected 2024 revenues is minus 4.6% (-€124.9 million). The cumulative impact as a percentage of projected revenues in 2024 is minus 21.7% (-€586.6 million).
The tenth scenario provides for the gradual introduction of a fixed non-taxable minimum over five years until reaching 70% of the minimum wage without changing other indicators. Under this scenario, the impact of first-year changes as a percentage of projected 2024 revenues is minus 3.6% (-€96.3 million). The cumulative impact as a percentage of projected revenues in 2024 is minus 28% (-€756.9 million).
The eleventh scenario was recommended by the Latvian Confederation of Employers (LKRD): this is the gradual introduction of a fixed non-taxable minimum over five years until reaching 70% of the minimum wage, as well as increasing the threshold for applying PIT. Under this scenario, the impact of first-year changes as a percentage of projected 2024 revenues is minus 4.2% (-€113.8 million). The cumulative impact as a percentage of projected revenues in 2024 is minus 29.6% (-€801.7 million).
The twelfth scenario was proposed by the Foreign Investors Council of Latvia (FICIL): it is proposed to set a fixed non-taxable minimum in the first year at 500 euros, set one PIT rate of 25% and abolish the solidarity tax. Under this scenario, the impact of first-year changes as a percentage of projected 2024 revenues is minus 5.6% (-€150.3 million). The cumulative impact as a percentage of projected revenues in 2024 is minus 14% (-€379.3 million).
The thirteenth scenario also recommended FICIL: set a fixed non-taxable minimum in the first year at 500 euros and set one PIT rate of 25% while maintaining the solidarity tax. Under this scenario, the impact of first-year changes as a percentage of projected 2024 revenues is minus 2.7% (-€74.2 million). The cumulative impact as a percentage of projected revenues in 2024 is minus 9.8% (-€265.8 million).
The fourteenth scenario provides for the establishment of a fixed non-taxable minimum in the first year at the level of 500 euros and a gradual achievement of 80% of the minimum wage if other indicators do not change. Under this scenario, the impact of first-year changes as a percentage of projected 2024 revenues is minus 14% (-€379.7 million). The cumulative impact as a percentage of projected revenues in 2024 is minus 25.9% (-€700.2 million).
According to the fifteenth scenario, it is planned to gradually introduce a fixed non-taxable minimum over three years with a simultaneous increase in the second PIT rate and the preservation of the solidarity tax and the redirection of the previous part of the PIT in the amount of 10 percentage points to finance health care. Under this scenario, the impact of first-year changes as a percentage of projected 2024 revenues is minus 7.7% (-€208.3 million). The cumulative impact as a percentage of projected revenues in 2024 is minus 23.2% (-€628.3 million).
During the meetings of the working group, the most important indicators affecting the labor force and employment were analyzed and included in the assessment, such as economic activity of the population, productivity by industry, average wage level, wage structure, tax burden on labor and its impact on competitiveness in the region, available jobs in the country, state and municipal budget revenues, applied personal income tax benefits and others.
Health and social insurance indicators in the context of labor costs, as well as inequality and poverty indicators and the factors influencing them, were also discussed with partners. The analysis also includes comparisons of these indicators in the Baltic countries, Poland and the European Union average.
Finance Minister Arvil Ascheradens noted that the tax working group created by the coalition parties conducted an in-depth analysis of the changes and created good working material for further decision-making.
“The desire of employers to improve the system of labor taxes in the Baltics is well understood. However, we must take into account the fact that equalizing the tax burden on labor requires significant funds. Whether we can afford this now will be shown by fresh tax revenue forecasts. In June we plan to achieve agreement on possible scenarios for changing labor taxes in the working group, taking into account the macroeconomic scenarios for the country’s development,” Ascheradens explained.
The report summarizes the main goals identified by the cooperation partners: ensuring the competitiveness of labor costs in the Baltic region, simplifying the system of application of labor taxes and personal income taxes, increasing the total number of employed persons (target groups), increasing the availability of labor by promoting mobility, increasing available income (reducing inequality), long-term solution.
The Tax Policy Improvement Coordination Group is a collegial advisory platform on tax policy issues, the purpose of which is to coordinate priorities in tax policy planning for the coming years. It is still working to identify possible compensatory measures.
During the development of proposals, discussions took place with social and business partners, including LDDK, LSSP, Latvian Chamber of Commerce and Industry, FICIL and others.
The assessment and subsequent decisions based on it will be included in the main directions of the medium-term state tax policy.
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2024-04-23 04:58:39