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Latvian government to differentiate personal income tax rates

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Staff Writer | June 27, 2017
Maris Kucinskis
Europe   The European Commission has warned Latvia

The Latvian government coalition has agreed to make personal income tax more progressive, differentiating its rates at 20 percent, 23 percent and 31 percent depending on the size of one's income, Prime Minister Maris Kucinskis told reporters following coalition partners' meeting on Monday.

The highest, 31 percent tax, would be charged on personal income exceeding 55,000 euros a year. The earners of high salaries, however, would no longer be paying the so-called solidarity tax.

The 23 percent tax rate would be applied to annual income between 20,000 euros and 55,000 euros, and the lowest, 20 percent tax rate, would apply to annual income that does not exceed 20,000 euros, the prime minister said.

The latest tax proposal also includes a gradual rise of the nontaxable monthly minimum income from 200 euros in 2018 to 230 euros in 2019 and to 250 euros in 2020.

"The latest proposal has been balanced so that it would not create a budget deficit," Kucinskis said.

At present, the tax rate on all personal income is 23 percent, but in the context of Latvia's planned broader tax reform, the Finance Ministry earlier proposed cutting the tax rate on income that does not exceed 45,000 euros a year to 20 percent and leaving it at 23 percent on personal income surpassing that amount.

The Finance Ministry first came up with its tax reform proposals in late February 2017, offering to lower the personal income tax rate to 20 percent from 23 percent, abolish solidarity tax and leave microenterprise tax in place.

The European Commission, which has expressed concerns about Latvia's tax reform plan, has commended Latvia's efforts to ease the tax burden on people with low income, but it regards the plan to slash the personal income rate to 20 percent from 23 percent as a risky measure.

The European Commission has warned that the tax cut would cost too much and that the compensatory mechanisms planned as part of the tax reform would be insufficient to make up for the loss of budget revenue.


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